The Effect of Strategic Marketing Planning Behaviour on the Performance of Small-to Medium-Sized...

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International Journal of Management Vol. 29 No. 1 Part 1 Mar 2012 159 The Effect of Strategic Marketing Planning Behaviour on the Performance of Small- to Medium-Sized Firms Gabriel O Ogunmokun United States University of the Virgin Islands Elaine Chen Hsin Tang Academy of World Business, Australia According to the literature very few small enterprises survive the long-term. However, despite the continuing interest in the concept of strategic marketing planning, very little research has been done particularly in Singapore to examine whether the level of performance in small to medium sized business organizations is related to the extent to which the components of the strategic marketing planning process are carried out in small to medium sized businesses. This paper aims to present the results of a study that addressed whether there are significant differences in the extent to which small to medium sized business organizations in Singapore with a high level of performance versus those with a low level of performance carried out the various activities of the strategic marketing planning process. Introduction Although strategic marketing planning practitioners and theorists have been writing for many years about the importance of strategic marketing and the benefits to be derived by organizations from the utilization of strategic planning process (Armstrong and Kotler 2011; Bergeron and Rivard 2003; Cravens 2008; Cravens and Piercy 2006; David 2009; Greenley 1986; Johnson et al 2008; Kotler and Keller 2009; McCarthy 2009; Morgan, McGuinness and Thorpe 2000; Paley 2006; Parnell 2000; Perreault et al 2008; Pride and Ferrell 2010; Rajaratnam and Chonko 1995; Stanton, 2008) very little research has been done to examine whether the level of performance of small to medium sized business organizations in Singapore is related to the extent to which the components of the strategic marketing planning process are carried out by the small to medium sized businesses in Singapore. This paper presents the result of a study that was designed to address whether there are significant differences in the extent to which small to medium sized business organizations in Singapore with a high level of performance versus those with a low level of performance carried out the various strategic marketing planning activities. What is a Strategic Marketing Plan? According to Perreault et al (2008), strategic marketing planning means finding attractive opportunities and developing profitable strategies that specifies a target market and related marketing mix. Kotler and Keller (2009) and Armstrong and Kotler (2011), stressed that a strategic marketing plan involves laying out the target markets and the value proposition that will be offered, based on the analysis of the best market opportunities. The marketing plan is the central instrument for directing and coordinating the marketing effort of an organization and the content of a marketing plan includes laying out current situation,

Transcript of The Effect of Strategic Marketing Planning Behaviour on the Performance of Small-to Medium-Sized...

International Journal of Management Vol. 29 No. 1 Part 1 Mar 2012 159

The Effect of Strategic Marketing Planning Behaviour on the Performance of Small- to Medium-Sized FirmsGabriel O OgunmokunUnited States University of the Virgin Islands

Elaine Chen Hsin TangAcademy of World Business, Australia

According to the literature very few small enterprises survive the long-term. However, despite the continuing interest in the concept of strategic marketing planning, very little research has been done particularly in Singapore to examine whether the level of performance in small to medium sized business organizations is related to the extent to which the components of the strategic marketing planning process are carried out in small to medium sized businesses. This paper aims to present the results of a study that addressed whether there are significant differences in the extent to which small to medium sized business organizations in Singapore with a high level of performance versus those with a low level of performance carried out the various activities of the strategic marketing planning process.

IntroductionAlthough strategic marketing planning practitioners and theorists have been writing for many years about the importance of strategic marketing and the benefits to be derived by organizations from the utilization of strategic planning process (Armstrong and Kotler 2011; Bergeron and Rivard 2003; Cravens 2008; Cravens and Piercy 2006; David 2009; Greenley 1986; Johnson et al 2008; Kotler and Keller 2009; McCarthy 2009; Morgan, McGuinness and Thorpe 2000; Paley 2006; Parnell 2000; Perreault et al 2008; Pride and Ferrell 2010; Rajaratnam and Chonko 1995; Stanton, 2008) very little research has been done to examine whether the level of performance of small to medium sized business organizations in Singapore is related to the extent to which the components of the strategic marketing planning process are carried out by the small to medium sized businesses in Singapore. This paper presents the result of a study that was designed to address whether there are significant differences in the extent to which small to medium sized business organizations in Singapore with a high level of performance versus those with a low level of performance carried out the various strategic marketing planning activities.

What is a Strategic Marketing Plan?According to Perreault et al (2008), strategic marketing planning means finding attractive opportunities and developing profitable strategies that specifies a target market and related marketing mix. Kotler and Keller (2009) and Armstrong and Kotler (2011), stressed that a strategic marketing plan involves laying out the target markets and the value proposition that will be offered, based on the analysis of the best market opportunities. The marketing plan is the central instrument for directing and coordinating the marketing effort of an organization and the content of a marketing plan includes laying out current situation,

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setting objectives, strategies, action program, budgets, implementation and control. The purpose of a strategic plan, according to Johnson et al (2008), is to specify what business an organization is in and the direction it is going. Cravens (2008), emphasized that the environment and all functional areas of a business, such as finance, marketing, personnel are to be taken into consideration during the strategic marketing planning process.. Cravens (2008) views the strategic marketing planning process as consisting of the following key steps: analysing the environment, designing a marketing strategy, formulating a marketing program, and implementing and controlling the marketing program. David (2009) and Cravens (2008) identify environmental analysis, objective setting, strategy design, and implementation and control in the strategic planning process.

A review of the major prescriptive literature about the strategic marketing planning process (Armstrong and Kotler 2011; Cravens 2008; Cravens and Piercy 2006; Cravens, David 2009; Johnson et al 2009; Kotler and Keller 2009; McCarthy 2009; Paley 2006; Parnell 2000; Perreault et al 2008; Pride and Ferrell 2010; Rogers 2001; Stanton 2008) shows that the process contains either implicitly or explicitly, the following components: Environmental Analysis; Setting Goals and Objectives; Formulating Marketing Strategy; Action Programs; Implementation and Control. This paper therefore examines whether there are significant differences in the extent to which small to medium sized business organizations in Singapore with a high level of performance versus those with a low level of performance carried out the various activities that are in the strategic marketing planning process. Small to medium sized enterprises are used in this study because according to Yeo (2007), although the small to medium sized enterprises’ contribution to Singapore’s economy is about 46% of Singapore’s GDP and 51% of local employment, only few small enterprises survive the long-term. Therefore, knowing if the performance of SMEs in Singapore is influenced by their strategic marketing planning practices may help SMEs consultants and association in encouraging SMEs to have strategic marketing plans for their organizations.

Methodology

Respondents for this study were owners/mangers of small to medium sized enterprises in Singapore that were not foreign-controlled and/or a subsidiary of another company. The samples were selected from the following two different directories: the directory of the Association of Small and Medium Enterprises Singapore (ASME) and KOMPASS Singapore. Each of the two directories contained information including the number of employees in each company, industry classification, key person(s) to contact, address and telephone number.

Regarding the definition of small to medium sized business organizations, Singapore SME Portal (2008) defines SMEs in Singapore as having not more than 200 employees, having at least 30% local equity, and having fixed productivity assets (defined as net book value of factory building, machinery and equipment) not exceeding $15 million. As a result, in the selection process, organizations that employed more than 200 employees

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or that were not independently owned and operated were first screened out from the list of companies to be sampled for this study. From the remaining organizations in the two directories, the systematic sampling technique was used to select 500 companies. Organizations that were subsidiaries of other organizations were also not included in the 500 organizations selected for the study. The primary reason for using the systematic method was due to its “economic efficiency” because it could be applied with little difficulty, accomplished in a relatively short time period and at a moderate cost (Burns and Bush 1995). Furthermore, because this method employed a random starting point, according to Burns and Bush (1995), it assured sufficient randomness in the systematic sampling to approximate a known and equal probability of any small to medium sized enterprise being selected into the sample.

The primary data for this study was obtained via a self-administered mailed questionnaire. The questionnaire was pre-tested and subsequently revised before it was mailed out to 500 small to medium sized businesses in Singapore. Various methods such as pre-notification, incentives and follow-ups interviews were employed to improve response rate. Reminder letters were sent out approximately three weeks after the questionnaires were first sent out to firms that had not replied. Overall, of the 500 small to medium sized enterprises invited to participate in this study, 144 questionnaires were returned. However 13 of these questionnaires were deemed “unusable” because businesses for 10 of these questionnaires did not meet the definition of locally owned small and medium sized enterprises; a further 3 were rejected due to a substantial number of missing item responses. This resulted in a total of 131 usable questionnaires, yielding a low response rate of 26.2%. Although the response rate is low, it is considered satisfactory in that it is better than those attained by some previous studies. For example, Hooley et al. (1984) had a 14% response rate and Greenley and Bayus’ (1994) only had an 11% response rate.

A follow-up telephone interview of 20 non-respondents was conducted. Fourteen respondents attributed the cause of non-response to a lack of time while the rest of the six respondents indicated that they were not interested in participating in this study because they were too busy. None of those respondents, who were interviewed, reported difficulty in understanding or completing the questionnaire as a reason for non-response. To determine whether the characteristics of respondents differ from those of non-respondents, the information from a follow-up telephone interview of 20 non-respondents showed that, at 5 per cent significance level, the characteristics of non-respondents concerning firm size, total sales turnover, industry type, age of the firm, and the products/serviced offered did not differ significantly from those of respondents.

Classification of small to medium sized businesses into organizations with low level and high level performanceSince performance is a complex multi-dimensional variable that could be measured in a variety of ways, there is no universally acceptable best way to measure it, (Dess and Robinson 1984; Fredrickson and Mitchell 1984, Lysonski and Pecotich 1992) as no method of performance measurement is without limitations. Some of the most popular measures are economic/financial in nature. For example, return on assets, sales

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growth, profit margins, return to shareholders, etc. Several authors (Chakravarthy 1986; Dyson and Foster 1980; Greenley 1986; Ramanujam and Venkatraman 1987; Watkins 2003), put forward non-financially orientated measures in terms of intangible benefits provided by planning. For example, improvement in motivation and the integration of diverse functions. Therefore, given the lack of consensus on the optimal measure of organisational performance, this study followed the recommendation of Walker and Ruekert (1987), and used the following effectiveness and efficiency measures of performance dimensions.

The effectiveness dimension relates to the success of an organisation’s products, services and activities in relation to those of its competitors. It is commonly measured by items such as relative sales growth, and market share (Walker and Ruekert 1987). For this study, the effectiveness dimension was determined through two measurements that aimed to capture the respondents’ perception of their performance relative to their competitors on various dimensions. This was done in this study, by asking respondents to indicate their organization’s profitability, sales growth and sales volume relative to their major competitors. For the measurement, a five-point interval scale (with 1 representing “a lot worse” and 5 representing “a lot better”) was used. With regard to the second measurement of the effectiveness dimension, respondents were asked to estimate relative market share as suggested by Capon et al. (1988) within their respective industries, using a nominal scale that required respondents to choose the most appropriate market share percentage.

There are a number of reasons for using relative measurements. First and foremost, relative measures enable respondents to answer the questions without revealing confidential sales and profit information. Secondly, although these performance instruments were based on self-assessed measures, considerable support for their validity had been established by other research studies which provided empirical evidence that these subjective measures were as accurate as objective measures of performance (Dess and Robinson 1984; Sapienza et al. 1988, Tan and Litschert, 1994). Thirdly, according to Pearce et al. (1987), using performance measurements that were “relative to competitors” may allow for greater comparability especially across different marketing planning levels, and industries.

The second performance dimension identified by Walker and Ruekert (1987) is that of efficiency. It refers to the outcome of a business’ programs in relation to the resources employed in implementing them. Common measures of this dimension include profitability and return on investment (Walker and Ruekert 1987). With respect to this performance dimension, two measurements were specifically employed for the study. First of all, respondents were asked to indicate their profitability status, that is, whether organisations are “making profit”, “breaking even” or are “not making profit”. The second measurement asked respondents to indicate their current annual sales revenue, based on a number of alternatives ranging from “less than $50,000” to “$2 million and above”. Non-specific questions were deemed appropriate as respondents were reluctant to divulge their actual financial performance results for this study.

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Therefore, in order for an organization in this study to be classified as an organization with a high level of performance, the organization must be: making a profit, achieving moderate or rapid sales growth, performing a lot better than its competitors in terms of profitability, sales growth and sales volume, and having a market share of 20 per cent of more. Using the above performance classification criteria resulted in 49 enterprises classified as organizations with a high level of performance, and 82 enterprises classified as organizations with a low level of performance.

Findings

Strategic Marketing Planning Activities Performed

The result of asking firms to indicate the extent to which they carried out each of the strategic marketing planning process activities (on a 5 - point scale where 1= carried out to a small extent and 5= carried out to a great extent), revealed significant differences between organizations with a low level of performance and organizations with a high level of performance (at 0.10 level of chi-square statistic). More organizations with a high level of performance cited carrying out the following strategic marketing planning process activities to a greater extent than organizations with a low level of performance.

- Gathering of external information

- Setting of objectives in the area of profits

- Setting of objectives in the area of market share

- Setting of objectives in the area of pricing

- Setting of objectives in the area of promotion

- Setting of objectives in the area of distribution

- Developing an action plan to achieve objectives

- Reviewing and monitoring of results of planning

For example, the majority (63.3 per cent) of the organizations with a high level performance, compared to 47.6 per cent of organizations with a low level of performance, “gathered information” to a great extent on factors outside their organizations when planning. The majority (75.5 per cent) of the organizations with a high level of performance set objectives in the area of profits as compared to only 26.8 per cent of organizations with a low level of performance that set objectives in the area of profit. Thirty nine per cent of organizations with a low level of performance claimed to review and monitor results of their planning to a great extent, compared to the majority (61.2 per cent) of organizations with a high level performance indicated that they conducted this activity to a great extent (see table 1).

However, the analysis revealed no significant differences between organizations with a high level of performance and organizations with a low level of performance in the

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extent to which they carried out the following strategic marketing planning process activities (see table 1).

- Gathering information on the organization itself

- Conducting a SWOT analysis

- Setting objectives in the area of sales

- Setting objectives in the area of products/services

- Identifying who the organization’s main customers are

- Developing a positioning strategy for the organization

Table 1: Strategic Marketing Planning Process Activities Performed Organisations

with a low level of performance that carried out

the following activities to a great extent

when planning N = 82

Organisations with a high level of performance that carried out

the following activities to a great extent

when planning N = 49

Chi-square

testSig.

Level

N % N %Gather information on factors outside the organisation 29 47.6 31 63.3 0.08

Gather information on the organisation itself 31 37.8 20 40.8 N.S.

Conduct a SWOT analysis 29 35.4 19 38.8 N.S.

Set objectives in the area of sales 44 53.7 32 65.3 N.S.

Set objectives in the area of profits 44 53.7 37 75.5 0.01Set objectives in the area of market share 22 26.8 23 46.9 0.02

Set objectives in the area of pricing 30 36.6 27 55.1 0.04Set objectives in the area of products/services 36 43.9 28 57.1 N.S.

Set objectives in the area of promotion 17 20.7 17 34.7 0.08

Set objectives in the area of distribution 17 20.7 17 34.7 0.08Identify who the organisation’s main customers are 24 29.3 13 26.5 N.S.

Develop a positioning strategy for the organisation 39 47.6 27 55.1 N.S.

Develop an action plan 38 46.3 33 67.3 0.02

Review and monitor results of planning 32 39.0 30 61.2 0.01

N.S. = No significant difference at 0.10 level

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Formalization of Strategic Marketing Planning ActivitiesThe data regarding the extent to which the strategic marketing planning process activities performed by these organizations were written down were found to be related to the level of performance. The result of asking firms to indicate the extent to which the strategic marketing planning process activities carried out were written down (on a 5 - point scale where 1=written down to a small extent and 5=written down to a great extent), revealed significant differences between organizations with a low level of performance and organizations with a high level of performance (at 0.10 level of chi-square statistic). More organizations with a high level of performance cited writing down to a great extent the following aspects of their strategic marketing plans as compared to organizations with a low level of performance (see table 2).

Table 2: Planning activities written downOrganisations

with a low level of performance that wrote down the following to a great extent

N = 82

Organisations with a high level of performance that wrote down the following to a great extent

(N = 49

Chi-square

testSig.

Level

N % N %Business Mission 26 31.7 26 53.1 0.02

Marketing objectives in the area of sales 34 41.5 26 53.1 N.S.

Marketing objectives in the area of profit 34 41.5 24 49.0 N.S.Marketing objectives in the area of market share 16 19.5 16 32.7 0.09

Marketing objectives in the area of pricing 21 25.6 18 36.7 N.S.

Marketing objectives in the area of products/services 25 30.5 22 44.9 0.10

Marketing objectives in the area of promotion 15 18.3 13 26.5 N.S.

Marketing objectives in the area of distribution 16 19.5 16 32.7 0.09

Summary of the organisation’s strengths, weaknesses, opportunities, and threats 20 24.4 10 20.4 N.S.

Product and/or service development 28 34.1 18 36.7 N.S.

Pricing 43 52.4 31 63.3 N.S.

Promotional Activity 21 25.6 15 30.6 N.S.

Distribution 19 23.2 12 24.5 N.S.

Action Plan 34 41.5 22 44.9 N.S.Methods for reviewing and monitoring the results of marketing strategies & plans 21 25.6 17 34.7 N.S.

N.S. = No significant difference at 0.10 level

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- Business mission

- Marketing objectives in the area of market share

- Market objectives in the area of products/services

- Marketing objectives in the area of distribution

For example, 53.1 per cent of organizations with a high level of performance indicated that “business mission” was documented to a great extent, as compared to 31.7 per cent of low level performers who claimed to do the same. Less than 20 per cent of low level performers wrote down the “marketing objectives in the area of market share” and the “marketing objectives in the area of distribution” to a large degree, as opposed to 32.7 per cent of high level performers (see table 2).

However, the data in table 2 regarding the extent of documenting the organisation’s strategic marketing planning activities, showed no significant differences between the organizations with a high level of performance versus those with a low level of performance concerning the extent to which the following were written down: marketing objectives in the areas of sales, profit, pricing, promotion; summary of the organization’s strengths, weaknesses, opportunities and threats; product and/or services development, pricing; promotion, distribution, action plan and methods for reviewing and monitoring the results of marketing strategies and plans.

Implementation of Strategic Planning

As shown in table 3, the activities conducted by respondents when implementing their strategic marketing plans showed significant differences between the low level and high level performers. It shows that the extent to which organizations state the activities to be implemented; define the deadlines for implementing their strategies; allocate the time in which the strategies are to be implemented; and provide incentives for employees to carry out their strategies when implementing strategic marketing plans are related to the level of performance.

For example, more than a half (55.1 per cent) of high level performers claimed to “state the activities to be implemented” to a great extent when implementing their marketing plans, while less than a third (31.7 per cent) of low level performers carried out this activity to the same degree. Also, more high level performers (55.1 per cent), than low level performers (35.4 per cent), “define deadlines for implementing the strategies” to a great extent when implementing marketing strategies. About 35 per cent of high level performers “provide incentives for employees to carry out the strategies effectively” compared to only 20.7 per cent of low level performers who pursued this implementation activity to the same extent (see table 3).

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Summary and ConclusionThis study found that the extent to which the strategic marketing planning activities performed by these small to medium sized business organizations were written down is related to the level of performance. Organizations with a high level of performance tend to write down to a great extent their business mission, marketing objectives in the area of market share, products/services and distribution compared to the organizations with a low level of performance.

Moreover, this study also found that the extent to which firms carried out the various strategic marketing planning process activities (such as gathering external information,

Table 3: Strategic Planning Implementation

Organisations with a low level of performance that carried out

the following implementation

activities to a great extent N

= 82

Organisations with a high level of performance that carried out

the following implementation

activities to a great extent

N = 49

Chi-square

testSig.

Level

N % N %

State the activities to be implemented 26 31.7 27 55.1 0.01

Define the deadlines for implementing the strategies 29 35.4 27 55.1 0.03

Allocate the time in which these strategies are to be implemented 28 34.1 24 49.0 0.09

Assign people who are to be responsible for implementing these strategies 38 46.3 28 57.1 N.S.

Specify how the strategies are to be implemented 32 39.0 22 44.9 N.S.

Allocate financial resources needed to implement these strategies 31 37.8 18 36.7 N.S.

Communicate to employees when and how the strategies will be carried out 36 43.9 24 49.0 N.S.

Provide incentives for employees to carry out the strategies effectively 17 20.7 17 34.7 0.08

Consistent monitoring to ensure that all activities are coordinated 40 48.8 26 53.1 N.S.

N.S. = No significant difference at 0.10 level

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setting profit objectives, as well as setting objectives in areas such as market share, pricing, promotion, distribution, developing an action plan for achieving objectives, and monitoring the results of planning) is related to the performance of these small to medium sized business organizations in Singapore. The study also found that the claim by the respondents that their firms carried out to a great extent many of the strategic marketing planning activities were cited more frequently by organizations with a high level of performance as compared to organizations with a low level of performance.

The data regarding the activities conducted by respondents when implementing their strategic marketing plans showed significant differences between the low level and high level performers. It shows that the extent to which organizations define the deadlines for implementing their strategies; allocate the time in which the strategies are to be implemented; and provide incentives for employees to carry out the strategies when implementing their strategic marketing plans are related to the level of performance.

The results of this study tend to support the literature that stresses the positive effect of strategic marketing planning on business performance (Armstrong and Kotler 2011; Bergeron and Rivard 2003; Bradley 2003; Cravens 2008; Cravens and Piercy 2006; Cravens, Lamb and Crittenden 2002; David 2009; Johnson et al 2009; Kotler and Keller 2009; McCarthy 2009; Paley 2006; Parnell 2000; Perreault et al 2008; Pride and Ferrell 2010; Rogers 2001; Stanton 2008) The lesson for small to medium sized businesses who strive to improve business performance is that they should engage in performing the various strategic marketing planning process activities covered in this study. Such a plan could be used to guide their operations, to learn from market feedback and to improve their performance.

However, because of the small sample size used for this study and the low response rate, a similar study on a much larger scale should be conducted to investigate further the validity of the findings of this study. Future research can also examine whether the level of performance is related to the type of strategy pursued by small to medium sized business organizations.

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