SMEs performance

EFFECT OF PROMOTIONAL STRATEGIES EMPLOYED BY SMALL AND MEDIUM

SIZED ENTERPRISES IN ENHANCING PERFORMANCE: A SURVEY STUDY OF

ELDORET TOWN.

ABSTRACT

The performance of organizations and enterprises encompasses three specific areas which are the

financial performance, product market performance and shareholders returns. SMEs are currently

facing difficulties which include market over-saturation, increasing competition and disgruntled

franchise owners. The research will base on various promotional strategies that can be employed

by SMEs, to find out the promotional methods used, to establish the effectiveness of the

promotional methods used and to find out the challenges encountered by SMEs in promotion of

their businesses. The research would help in the formulation of promotional strategies which will

assist the government in terms of policy formulation in the area of promotion and marketing. The

study adopted a survey study that was carried out in Eldoret town and concentrated on hardware

businesses. The study targeted a total of 470 respondents who included business owners,

employees and customers. A representative figure of 30% of the population will be used as the

sample size this will bring to a sample size of 133 which will be used in carrying out the

research. It will include a total sample size of 3 employers, 15 employees and 108 customers.

The research will adopt structured and unstructured questions in its questionnaires.

Questionnaires will be the main data collection instruments. Interview schedule will be used on

employers. The data collected will be represented in form of tables and graphs which will be

used in interpreting the respondent’s perception of issues raised in the questionnaires so as to

answer the research questions in table’s format. The research anticipates illustrating the

promotional strategies that can be employed by small and medium enterprises for better

performance

ACRONYMS.

EVA: Economic Value Added

IMS: Integrated Marketing Systems.

SMEs: Small and Medium Enterprises.

USPs: Unique Selling Points

OPERATION DEFINITION OF TERMS

PROMOTION: The publicizing of a product, organization, or venture so as to increase sales

or public awareness, Segre, (2010). This involves publishing of a product to

increase sales.

SMEs: These are businesses whose personnel numbers fall below certain limits Levitt,

(2002). This is small businesses with requires minimal capital to run them.

STRATEGIES: An elaborate and systematic plan of action, Randall, (2010). This involves

plan to follow when executing a certain activity.

PERFORMANCE: The act of performing; the carrying into execution or action; execution;

achievement; accomplishment; representation by action; performance of an

undertaking of a duty. That which is performed or

accomplished; a thing done or carried through; an achievement; a deed; an

act; a feat; esp., an action of an elaborate or public character

Levitt,(2002). The study will interpret performance to mean the success of a

business enterprise.

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the study

The performance of enterprises comprises the actual output or results of an organization as

measured against its intended outcomes. The performance of organizations and enterprises

encompasses three specific areas which are the financial performance, product market

performance and shareholders returns. In recent years many organizations and enterprises have

attempted to manage enterprise performance using the balanced score card methodology where

performance is tracked and measured in multiple dimensions. Existing literature has however

indicated the need for managers to pay more attention to the promotional strategies of enterprises

that are already in operation in an effort to enhance their operation (Obuna, 2008).

Promotional strategies have been adopted by organizations and industry operators to enhance

business operations. These are practices that perform the market development and growth

function. There is broad agreement that proper promotional strategies could improve enterprise

performance by providing real time market information that marketing mangers can use to

administer strategies effectively, formulate budgets, and manage resources. Sound promotional

strategies not only help organizations gain effective control over their current market, but also

enhance the outreach to new potential markets thus enhancing enterprise performance (Sigre,

2010).

Over the past decade developed countries have increasingly embarked on efforts to computerize

their Promotional strategies. Most common among these have been efforts to introduce

Integrated Marketing Systems (IMS) that computerize and automate key aspects of enterprise

marketing. IMS can enable prompt and efficient access to reliable data and help strengthen

enterprise controls, improving the provision of services which in turn lead to growth of customer

base and subsequently, improved enterprise performance. (Randall, 2010).In the developed

nations the process of promotional strategies is a fabric that is woven in the day to day operations

of the various enterprises. This can be attributed to the fact that the developed nations have

strong human capital, have support from the various bureaucracies involved and have strong

means by which they use to control their promotional strategies and hence lead to successful

promotional strategies.

In the developing nations on the other hand the concept of promotional strategies and its impacts

on enterprise performance is yet to be realized. This can be attributed to the lack of clear

information by the enterprises on the possible effects of the promotional strategies process on

their performance (Obuna, 2008).

In Kenya some of the enterprises have adopted the promotional strategies process while some

have not. For example most of the service industries have not adopted step by step or phased

approaches of ensuring that Promotional strategies practices are fully embedded in the enterprise

operation to enhance their performance. These enterprises have as a result failed to realize their

full performance potential. It is against this background that the study aims to investigate the

effects of promotional strategies on the performance of the small and medium size enterprises

with focus on Eldoret municipality.

1.2 Statement of the Problem

Small and medium sized enterprises are currently facing multiple difficulties simultaneously which

include market over-saturation, increasing competition and disgruntled franchise owners. This brings

concerns about the industry on what they are doing to cater for the above issues owing to the fact that

there is few if any promotional strategies are being incorporated. There is an observation that sales have

The promotional methods used in Eldoret town are not effective in retaining and increasing the

customers to the enterprises. Effective promotional strategies will increase demand for the product and

services and improve enterprise performance. Successful promotion of small and medium sized

enterprises outlets requires in-depth market research. The research therefore seeks to investigate the

effect of promotional strategies on small and medium sized enterprises performance in Eldoret town.

1.3 Research questions

i) What are the various promotional strategies that can be used to improve small and

medium sized enterprises performance in Eldoret municipality?

ii) What are the promotional strategies used by the small and medium sized enterprises in

Eldoret municipality?

iii) How effective are the various promotional strategies in improving performance of the

small and medium sized enterprises in Eldoret municipality?

iv) What are the challenges encountered in the promotion of the small and medium sized

enterprises and their possible solutions in Eldoret municipality?

1.4 Significance of the Study

This study will be vital in providing promotional strategies to small and medium sized

enterprises. Effectiveness of promotional methods used by this business will be discussed and

hence will assist these enterprises in emphasising on the use of these promotional methods. The

findings will be of vital importance to business scholars who will otherwise develop interest in

carrying out research on matters relating to promotional methods and strategies.

1.5 Scope and Delimitation of the Study.

Scope of the study

The study will be limited in scope to small and medium sized enterprises within Eldoret town,

the town was chosen due to high development rate of the town, small and medium sized

enterprises outlets are on the rise and increased competition among existing enterprises makes

the town suitable for the study. The study will be carried in Eldoret town on June, 2012.

Delimitations of the study

In spite of having numerous small and medium sized business enterprises in Eldoret town, the

study will concentrate on hardware business. After a brief reconnaissance, the researcher found

out that this business enterprises are closely situated hence will make it possible, easy and

convenient when carrying the research study and in administering the questionnaires.

1.8 Conceptual Framework

The conceptual framework of the study identifies the promotional strategies as the independent

variable where the enterprise performance is the dependent variable.

Independent variable

Strategies employed

Dependant variable

Source: Author (2012)

Advertising

Enterprises performance

Sales promotion

Labelling

Personal selling

Branding

CHAPTER TWO

2.0 LITERATURE REVIEWS

2.1 Introductions

This part of the study will discuss relevant theories as far as promotional strategies employed by

small and medium business firms is concerned form of secondary data, concepts with

significance to objectives will be presented in the empirical chapter. It reviews the contribution

made by scholars and summarizes them according to the research objectives.

2.2 Review of Theories.

2.2.1 Promotional theories

Price Advantage Theory

Price advantage theory by Levitt, (2002) asserts that sales promotional tools for small and

medium sized businesses are limited to the point of sale. It is therefore advisable to spend your

time and money on sales promotion within the trade channels; i.e. directed to your trade partners.

Pushing your sales through the trade channels is a far more effective way than trying to capture

the consumer market by addressing the end user. As said before, publicity is only effective if you

have a precise idea on your target markets or market segments. And even then, it is often

impossible for an exporter from remote countries to find the right media to reach that market. We

at CBI have a strong preference for sales promotion towards your trade channel. After all, you

have chosen your trade partner on the basis of his market or product knowledge. He should have

a captive market, where his position is strong enough to initiate the necessary sales volume.

Getting a strong position amongst other competitors from which your trade partner can choose is

therefore a priority.

Levitt, (2002) further asserts that numerous methods are used in setting price, such as charging

prices that consumers expect to pay, which is determined through experience based on last year's

prices and customers; charging the same or better prices than your competitors; or charging

prices based on production or purchase costs. Indeed, costs should be used as a gauge to set the

lower bounds of the prices for the products and services you are selling. An effective pricing

strategy includes elements of several methods. However, regardless of the policy used, price

must be justified by value to the customer. Remember, ultimately, customers determine prices.

Using Hodgson’s (1999) taxonomy, price advantage theory is an evolutionary, disequilibrium-

provoking, process theory of competition in which innovation and organizational learning is

endogenous, firms and consumers have imperfect information, and entrepreneurship, institutions,

and public policy affect promotional performance. At its core, price Advantage theory combines

heterogeneous-demand theory with the resource based theory of the firm. Employing reasonable

price on products is a great of promoting the same goods.

Hodgson (1999) further asserts that, viewing products as bundles of attributes, different market

offerings or bundles are required for different market segments within the same industry.

Contrasted with the view that price is a production function that combines homogeneous,

perfectly mobile factors of production, the price-based view holds that the firm is a combiner of

heterogeneous.

Imperfectly mobile entities that are According to Levitt, (2002) deciding on a pricing strategy is

one of the primary roles of the promotional manager and this process involves some key

decisions about how that the customer is, how to contact the consumer them, and what the

message should be. Levitt, (2002) further asserts that these questions can be answered using a

three stage process, which is equally relevant for all elements of the marketing mix:

Segmentation – dividing the marketing into distinct groups, Targeting – deciding which of these

groups to communicate with, and how to talk to them, Positioning – how the product or brand

should be perceived by the target groups, Messaging - delivering a specific message in order to

influence the target groups.

According to Levitt, (2002), evolution occurs most rapidly when competition for better prices is

intense. The same process is now occurring with promotional media. All traditional media

channels are now saturated, and competition for consumer attention is intense. At the same time,

the impact of any one medium is becoming diluted. There are many more TV and radio channels,

consumer have the ability to skip adverts and free information is now much more accessible. As

a result, companies are becoming increasingly innovative in their approach to communications

and a host of new media channels have emerged. As a result, media choice is becoming a tricky

task, which is why detailed segmentation is so important - it's no use starting a Twitter campaign

if none of your target market is regular users of the site.

According to Levitt, (2002) once you have decided which pricing strategy to concentrate on; the

next step is to ensure an integrated approach is taken. Regardless of whether you are promoting a

new product or raising awareness, it's important that all ads across all media work together

towards a common goal by using similar messaging and 'look and feel'. An integrated approach

can dramatically increase the effectiveness of any campaign and will help create your brand

image.

To get the best response from your target market, you need ensuring the message is relevant and

clear – once you've managed to gain the valuable attention of your customer the last thing you

want is for them to be confused about what you're saying. Determine the objectives of the advert

and ensure these aims are addressed clearly. Think about the next steps you would like the

audience to take, whether this is visiting a website, ringing a number, or being able to recall your

brand when they are next in the shops Levitt, (2002).

Levitt, (2002) further asserts that, positioning is the process of developing an image for your

company or product. This can be achieved partially through branding, but it's important to realise

that all elements of the marketing mix combine to provide the full picture. You must ensure that

all areas of your business live up to expectations in order to successfully position yourself in the

way you hope. Positioning also considers the competition, and you need to explain why you are

unique in the marketplace and better than the other products on the shelf.

According to Levitt, (2002) branding is a powerful tool for positioning your product. Branding is

used on almost all customer facing elements of a product, from the packaging design to the style

of writing used on posters. Every communication a customer received ads up to form a mental

picture of your brand and can influence the price they are willing to pay for your products. This

ability to charge more due to the positioning of your product is known as 'brand equity'. Your

branding also needs to consider your unique selling points (USPs) and ensure these are easily

recognised through your messaging is your product the best value, longest lasting, sweetest

smelling or fastest.

A corporate identity is a useful tool to ensure that your branding is used in a consistent way

throughout the company. This detailed document runs through almost every conceivable

customer touch point and provides guidance on the presentation and style which should be used.

This could include use of logos, colours, tag lines, uniform and the type of coffee to serve guests.

A CI guide is particularly useful if any creative work it outsourced to agencies or freelancers or

if you have many offices worldwide.

The most powerful brands can be identified by many elements of their communications material,

not just a by their logo or slogan and this is due to successful implementation of a recognisable

corporate identity. Recognition is a key part of any purchase decision so a corporate identity

should for a core element of your advertising strategy.

It's a documented fact that creative, well branded, distinctive advertising generates the best

results so ensure you use the best possible creative team you can get your hands on, and give

them a detailed brief. Remember that a message will only be successful if it appeals to the target

audience, so constantly refer back to the customer and tailor the ads to them Levitt, (2002).

Levitt, (2002) concludes that almost every business in the world will deal in advertising at some

point, whether it is a listing in the Yellow Pages, or a billboard in Times Square. Whatever

you're planning, the strategic thinking behind all advertising is essentially the same – get to know

your audience, target them efficiently and position your brand in the way that will benefit your

business.

Extant Theory.

The extant theory by Rao, (1999) offers an explanation, why promotional dispersion would result

in price equilibrium. In all these the consumer model assumed results in some discontinuity in

demand; as a consequence there is no equilibrium in pure strategies. The resulting mixed strategy

equilibrium is then offered as an explanation for both contemporaneous and temporal dispersion

in prices. One implication of this interpretation is that the prices charged by a firm should not be

serially correlated and should be independent across firms in a given period. The scant empirical

work that examines whether price promotions are consistent with the mixed strategy

interpretation has largely focused on testing whether price distributions of competing products

exhibit independence (Rao, 1999) or has focused on the theory which is most consistent with the

empirically observed distribution of prices(Villas, 1995). Another implication of this theory is

that the distribution of prices is bi-modal with modes at the ends of the support and that there are

no holes in the interior of the support Rao, (1999).

While Rao et. al (1999)find that the promotion across brands are independent, they note that in

many cases the distributions have more than two modes. Our empirical examination of the

distribution of prices of brands across several categories is consistent with their finding that the

distribution of prices is multi-modal. The salient features of a typical distribution of prices of a

brand in a frequently purchased category in a store.

All else equal, offering a price promotion lowers the margin. Consequently, in the absence of

cost decreases and other externalities, firms can benefit only if its demand expands in

promotional periods. Several researchers have empirically examined the effect of promotions on

demand. Early work Padmanabhan (1999) attributes a quarter of the short-term demand

expansion to primary demand effects (purchase acceleration and quantity increase) and three

quarters of the demand expansion to secondary demand effects (brand switching). More recently,

Steenburg (2007) show that primary demand effects account for about two thirds of the sales

increase. It is therefore, helpful to examine the sources of primary demand expansion. Primary

demand expansion may occur if consumers increase their rate of consumption in promotional

periods. However, in many categories such as toilet tissue, coffee etc. consumption rate is known

to be relatively constant and so demand expansion in promotional periods is most likely a result

of inter-temporal shifts in consumers’ purchases. Indeed this is consistent with the post-

promotional dip in sales that is documented in numerous empirical studies (Neslin 1999). All

consumers have the same reservation price and consume at a rate of one unit each period.

However, they differ in their promotional sensitivity. A fraction of the market is price insensitive

and purchases a unit from one of the brands at random as long as the price is not greater than the

reservation price. The remaining consumers are price sensitive however are of two types. A

fraction of the price sensitive segment is forward looking and may stockpile, purchase additional

unit for future, if prices are sufficiently low. The remaining promotion sensitive consumers who

are not forward looking purchase only one unit of the lowest price brand. Firms set prices to

maximize discounted profits over an infinite horizon. We characterize the Markov Perfect

Equilibrium of this game. Mixed strategy equilibrium is state contingent; that is firms’ pricing

strategies in any period depends not only on its pricing decisions but also on those of its rivals’

past decisions, (Neslin 1999).

More specifically, according to Steenburg, (2007) the promotional strategy in any given period

depends critically on whether or not other brands have offered a deep enough promotion in the

previous period to trigger stockpiling by forward looking consumers. A novel feature of our

model is that the price threshold below which forward looking consumers engage in stockpiling

is determined endogenously. This is important because the promotional policies depth and

frequency of discounts differ substantially across product categories. For instance, consider two

categories one in which a discount of 50% off regular price is common while in the other

category such discounts are seldom offered.

Krishna (2001) asserts that, consumers may not stockpile in the first category, when they see a

30% discount; however may be willing to stockpile in the second category for the same discount.

This implies that the firms’ promotional policies will have a bearing on the consumers’

stockpiling threshold which in turn affects the quantity purchased. It is clear that firms’ optimal

pricing policies should take into account the demand effects, which in turn depends on the

stockpiling threshold, Kotler, (2006).

According to Krishna (2001), characterizing the equilibrium promotional policy the stockpiling

threshold must be endogenously determined. Said differently the firms must recognize that any

change in market characteristics will not only affect its pricing policy directly but also indirectly

through its effect on the change in the stockpiling threshold. We would like to note that in any

model where stockpiling threshold is not endogenous the indirect effect is not captured. As a

result the equilibrium strategies and outcomes predicted by such models can be quite different

from those obtained from our model. We see our work building on two streams of literature; the

rich and established literature on price promotions/dispersion and the recent but growing

literature that analyzes consumer stockpiling behaviour. Much of the extant literature on price

promotion. Rao, (1999) proposes a static model to explain the price dispersion, both

contemporaneous and inter-temporal. Specifically, these studies show that there is no

equilibrium in pure strategies.

Krishna (2001) indicates that the mixed-strategy equilibrium of the static game is also

equilibrium of a dynamic game where the static game is played a finite number of times. In such

a setting, firms make identical and independent draws from the static equilibrium mixing

distributions and the draws explain why competing firms may charge different prices in a given

period as well as across time. Given that stockpiling is intrinsically a dynamic problem we

extend this literature by examining the pricing decisions of firms in an oligopoly where they

maximize profits over an infinite horizon. The demand dynamics in our model is also distinct

from the extant literature in this area. The aggregate demand in these models is assumed to be

constant, so short-term demand expansion resulting from promotions always comes at the

expense of competing firms.

However, recent empirical work by Steenburg, (2007) demonstrates that the aggregate demand

expansion in promotional periods accounts for about two-thirds of the sales increase, which is

consistent with the long established post-promotion dip in sales. In our model we allow some

consumers to be forward looking and purchase for future consumption when they find the prices

to be sufficiently attractive.

According to Kotler, (2006), inherently dynamic as stockpiling by consumers in a given period,

will have an effect on their demand in the following period, which in turn will affect firms’

pricing strategies. Second, consumers seldom know future prices. While they may have some

expectations of prices for future periods, but they face uncertainty about the exact price offered

in the future.

2.2.2 Performance Theories

Sigma’s Theory of Business Performance

The central tenet of this theory according to Padmanabhan (1999), is that many businesses

decline in performance and fail because the assumptions they make that form the basis for their

fundamental business decisions about society, markets, customers, products, technology, their

mission, become obsolete or invalid. Rao (1999), since the future is uncertain and the social

environment is constantly changing, even the soundest business theories eventually become

obsolete. Padmanabhan, (1999) for this reason every business and organization should

periodically examine their performance assumptions to see if they continue to reflect the current

realities they face and if not, how they should be changed. This model provides the organization

and structure to identify and examine those assumptions and change them if necessary.

This model is applicable to business, government and non-profit organizations. It can also be

used for new businesses and start-ups to identify, examine, and make explicit the assumptions

that underlie their business planning.

Marshall, (2008) argues that performance has the potential to become a new management

discipline. Starting with the question ‘‘what is performance?’’, Meyer, (2008) argues that

performance measurement, if used correctly, offers the potential for managers to understand

which of the activities undertaken generate revenues that exceed costs. Developing this theme,

Meyer, (2008) introduces the notion of activity-based revenue as a measurement methodology

and illustrates how this approach has the potential to overcome some of the shortcomings

encountered in the measurement systems used by organizations today.

According to Euske, (2004) Performance measurement describe performance as one of those

‘‘suitcase words in which everyone places the concepts that suit them, letting the context take

care of the definition’’. Euske,(2004) argues that this is one of the reasons why it is so difficult to

develop theories in the field, and suggest that performance should be equated with purposeful

action taken today designed to produce meaningful results tomorrow. Building upon this theme,

Lebas, (2003) then develop nine propositions designed to illustrate how performance can best be

defined and understood through causal models shared by organizational decision makers.

According to Marshall, (2008) measures of performance have been the traditional mainstay of

quantitative approaches to organizational performance measurement. Marshal, (2008) further

asserts that, over the past two decades a great deal of attention has been paid to the development

and use of non-financial measures of performance that can be used both to motivate and report

on the performance of business (and other) organizations. The impetus for such developments

has come from the bottom and the top of the organization alike. Much performance management

at the operational level is carried out using specific indicators of performance that are usually not

measured in financial terms.

Kotler, (2006), asserts that, business performance is inevitably a major consideration; there has

been an increasing recognition that other important factors in the effective running of the

organization cannot be well captured by such measures. Thus, nonfinancial performance

measures have undergone significant development, to the relative neglect of the development of

improved financial measures. However, the recent publicity surrounding the marketing of

economic value added EVA as an overall measure of company performance by management Co

The role of financial performance as a major objective of a business organization. Here some

overarching financial performance measure, such as profit, return on investment ROI or EVA, is

used to signify the achievement of an important perhaps the most important organizational

objective.

Kotler, (2006), asserts that, the function of small and medium sized business performance

measures as a mechanism for motivation and control within the organization. Here the financial

information provides a “window” into the organization by which specific operations are

managed through the codification of their inputs and outputs in financial terms. Clearly, there is

some overlap between these different functions. Efficient financial management is a component

of efficient overall management, but it does not subsume the latter. Performance may be

managed, in part, by the transmission of corporate objectives in financial form downwards as

part of the process of strategy implementation, but other mechanisms and measures are generally

required to supplement such financial measures.

Performance measures may provide substantial insight into the overall impact of operational

activities, but other, more specific, measures are generally needed to understand fully and

manage the drivers of performance. What follows is by no means a comprehensive review of the

uses to which financial performance measures have been put over the past thirty years. Rather, it

is a brief report of the highlights of this area that attempts to draw out the lessons that have been

learned, and that attempts to limit the confusion that can be caused by not recognizing the

different functions involved, (Neslin, 1999).

Classical theory of business performance

According to Marshall, (2008) on classical theory, business performance largely depends on

pricing, for the most part; pricing is controlled by the forces of supply and demand. As market

forces increase demand, prices increase. Products and services can be divided into two

categories: price sensitive and price insensitive. Buyers will shop around for a low price on

price-sensitive items. As prices decrease, volumes sold will increase. Purchase decisions on

price-insensitive goods are governed more by quality, uniqueness, and appearance, and less by

price. The category that products and services fall under depends on how much they are needed

or wanted by consumers. Kotler, (2006), generally speaking, those items that are critical to

maintaining day-to-day living will be price insensitive. Conversely, in the event real incomes

fall, less essential, leisure-type items will be the first to experience a decline in consumer

demand.

On the issue of business performance, Pitelis (2000) provides econometric evidence for the UK,

according to which outward investment is significantly and regularly influenced by domestic

aggregate demand. Moreover great business performance depends on the following factors

Neslin (1999), from Greece to Bulgaria and Romania, report that from a total of 85 direct

investments, a total of 53 cited “expected economic growth” as their main motivation for

investing abroad, by far the most popular factor. “Geographical location” was second with 31

firms citing it, with “investment incentives”, “labor costs”, “domestic market share”, “regional

market share”, “proximity to the EU”, “source of raw materials” and “cultural similarities”

occupying the nest seven. “Transport costs”, “political and economic climate”, “country’s chance

to join the EU”, “historical links”, “energy costs” and “labor skills” followed next. Pitelis (2000)

further asserts that, the primary data evidence is clearly in support of demand-side factors and

locational factors, much in support of this conceptual arguments.

Rowthorn, (2001), there is no attempt to test directly for the role of the national business cycle in

motivating outward investment. An aim of this section is to test for such a relationship. The best

known proxy variable for the business cycle is the unemployment rate. Wells (2002) A high

unemployment rate is a sign of economic decline, thus in the context of this arguments, a reason

for outward investment. A high unemployment rate according to Pitelis, (2000) leads to low

income values which highly affects the growth rate of SMEs to due low purchasing power of clients or

low demand.

According to Penrose, (2003) an insights, and went on to further extend the outcome. We have

then tested the resulting theory econometrically for the case of the USA and the UK. Our results

support the view that business cycle, and ‘excess resources’-related factors can motivate outward

investment.

Political and social instability, monetary austerity and a low domestic profit share are also factors

that may lead firms to undergo low performance. Kotler, (2006), all these are both in line with,

and confirm, existing theory and conventional wisdom. They add empirical weight on an issue

where evidence is rather scarce and shed empirical light on firm motives to go abroad. There is

an interesting, albeit hardly revolutionary, policy implication for government policy, too, from

our evidence. If governments wish to avoid ‘capital flight’ they should strive for ‘political

stability’ and a ‘healthy economic environment’, to include healthy demand conditions. It is

hoped that such policies will also be conducive to attracting inward investment – which,

however, is another paper.

2.2 Criticisms of Theories

Price Advantage Theory.

Olson, (2009) asserts that, the customer is always used to choose more convenient prices and

locations to receive services, apart from choosing fair prices as asserted by this theory, customer

is concerned by quality of products and the value for money. The commerce society, place,

although there were significant changes in the content, but the differentiation is still running

through them, but also to enable investors satisfaction is to create more product value.

Chen (2005) found that price advantage theory have failed to make much impact on marketing

practices. Perhaps this because inquiry has focused on demonstrating the integrity of various

theories rather than on their applicability in designing marketing strategies. As a result theory is

viewed as adding little insight not already provided by the marketers’ intuition on pricing

strategy.

According to Hymer, (2009), for products with high fixed costs, the more you sell the higher is the profit

margin - this is an incentive to grow. There are constraints, however. Expanding abroad involves costs the

now famous costs of being foreign. To offset these costs firms need monopolistic advantages. They derive

these in the context of growing domestically

Hult, (2009) asserts that information processing theory explains pricing in terms of cognitive

operations unlike price advantage theories it’s not limited to attitudes and traits as causes of

behaviour. Although some scholars have tried to study the relationship between pricing strategy

and value, but unfortunately, the existing value is mainly the demand value of benefit / cost. The

outbreak of financial crisis makes the social transformation, people from the industrial society

into the Commercial society, thus much-needed depth to excavate value, restoring the true

colours of the value.

Extant Theory.

Penrose (2003) criticized Hymer, (2009) extant theory for failing to distinguish between small

business enterprise and large business enterprises. The Penrosean challenge to extant theory has

not been answered. It calls for a macroeconomic approach to the determinants of

internationalization. The critical question, in this context, is to what extent extant theory of small

and medium sized enterprises (including Penrose’s own views) is of some input to answering

why internationalization is important. Penrose,(1999) claim that it does have an important input

by critically assessing and synthesizing extant theory of the SMEs and then extending the result

by invoking macroeconomic demand and business-cycle related considerations of help to

delineating between different nations.

Cohen et al, (1999), asserts that, through the removal of conflict, SMEs could capture value

through establishing collusive oligopolistic conditions in foreign and domestic countries, but also

through interpenetration of investments globally. This would lead to a global monopoly situation,

a major source of inefficiency in capitalism and a reason to replace it with something more

benign.

According to Zander’s, (1999) given that a benefit of FDI was control, if firms could somehow

retain control, but without internalizing, they could choose to externalize, e.g., outsource. This

would shift the burden of production to subcontractors, while SMEs could maintain overall

control, through, for example, ownership control of intangibles, such as brand names, or some

tangibles examples could be the Coca-Cola secret recipe, the colors of Benetton etc.

If firms acquire advantages through efficiency, then these should be considered. Differently put,

is eventual global collusive oligopoly that resulted from efficiency-derived advantages, e.g.,

through innovation as good/bad as one without such efficiency advantages? Is it worse than

‘perfect’ competition without innovation? The above pose the question whether advantages are

purely monopolistic or also efficiency based Hymer, (2009).

Sigma’s theory of business performance

According to Dunning, (2004), in criticism to sigma’s theory, correctly renamed advantages to

‘ownership’, in recognition that these can be both monopoly and efficiency-derived. Penrose

(2003) went further in claiming that advantages are definitional derived at first efficiency ones,

as they result from a process of endogenous growth that results from knowledge and innovation

within firms. She went on to claim that in their attempt to capture value, firms could use

‘impregnable uses’ as well as outright monopolistic practices. Thus, the final state could be

inefficient, but never the process. The potential inefficiency of any equilibrium state would call

for suitable regulation by the state (Penrose, 2003).

Porter’s (2005) contribution to competitive strategy, both suffer from a difficulty to account for

internal firm resources and explain endogenous growth and the direction of expansion.

Hymer focused on structural market failures at the expense of natural (transaction costs related)

market failures Rugman, (1999). There is clearly no question that already in the thesis Hymer

posed the ‘why internalize’ question, indeed in these very terms: “The firm is a practical devise

which substitutes for the market. The firm internalizes or supersedes the market”. (Hymer, 2009)

Despite the ‘quote’, transaction-costs-type theorizing in the thesis was minimal, so at the time

Dunning and Rugman’s (1999) claim was in essence right this claim is now rather

uncontroversial. In the 1968 paper, Hymer has explained both horizontal integration and vertical

integration, along, explicitly, Coasean lines, indeed predating much of Williamson-type

arguments, to include much of the jargon (e.g., specific assets, dishonest (today opportunistic

licensees, etc.) - all these are detailed in Pitelis (2002). Importantly, however, Hymer, went

further in the 1998 article, also explaining FDI in terms of the speed advantages on intra-firm

transfer of knowledge - an argument quite resource-based in nature, and reminiscent of Zander’s

(1999) ‘evolutionary theory of the SMEs.

Hymer (2009) used product life cycle, theorizing (a push factor for diversification and

internationalization of firms in mature industries), proposed an M-form hypothesis, in similar

terms to Oliver Williamson’s (2004) subsequent analysis, and was first to predict externalization

through subcontracting, at the very time he was observing internalization and growing

hierarchies. An important question is how this impressive record relates to his analytical

framework.

One can hazard various reasons why that happened. She did not try to draw the links between her

analysis of the theory of the growth of the firm and the SMEs itself. In part, this is due to her

view that once up and running a subsidiary could usefully be regarded as a separate entity

(Penrose, 2003). In addition, Kay (1999) observes, Penrose’s choice of (the oil) industry was not

the best case study of her theory of growth, exhibiting hardly any (internal resource-related)

diversification strategies. In addition, Penrose’s theory is arguably more amenable in explaining

the direction of expansion than the mode (Kay 1999). When it comes to understanding the mode,

transaction costs-related arguments may be indispensable. Hymer, (2001) asserts that an

important reason for the failure to recognize the Penrosean contribution to the issue of the MNE

is that initially she had refused to attribute much significance to the issue of multi nationality per

se, versus expansion in general. In most of her writings, Penrose views the multinational as a

natural outcome of the process of expansion.

Classical Theory of Business Performance - key criticisms

According to Rugman’s, (1999) excellent business performance depends on good relations

between buyers and sellers. Individual achievement is no substitute for team effort. The same

holds true for a business. Too often, managers forget that employees are part of the team, which

can destroy a business. Work with your employees and communicate with them regularly.

Educate them on financial aspects of the business, including the value of their service to

customers.

According to Zander’s (1999) giving business employees financial and educational incentives for

doing their jobs well encourages them to handle customers diligently. Zander’s (1999), further

asserts that, employees are businesses most important resource. A sound employee retention

program will pay back big dividends in a work force that is highly motivated and productive.

Penrose (2003) she suggests that it is easy to envisage a process of expansion of international

firms within the theoretical framework of the growth of firms It is only necessary to make some

subsidiary ‘empirical’ assumptions to analyze the kind of opportunities for the profitable

operations of foreign firms that are not available to firms confining their activities to one country

as well as some of the special obstacles.

Penrose (2003) further asserts that make enough difference to ‘justify separate treatment of

international firms.

According to Zander’s (1999), the differences arise from the additional obstacles relating to

culture, language and similar considerations (which may not apply nationally within ethnically

diverse countries), to different currencies, border controls or other types of physical or financial

regulations, political attitudes of foreign or home governments, size of protected markets, the

configurations of firm cultures or associations, the type of technology involved, and so on’.

Penrose's (2003) need for separating national from international expansion stresses our earlier

point, that SME should be looked at in the (sometimes artificial) differences that emerge from

the existence of nation states. In the absence of these, FDI and MNEs would simply not exist,

and similarly all we could only need is a theory of the growth of the firm. Having said that, it is

arguable that Penrose herself did not fully provide a satisfactory reason to distinguish between

national firms and MNEs. To this end, we claim here that demand-side, business-cycle-type

differentials across countries may provide some answers to our concern.

Hymer, (2001) asserts that an integrated framework and the role of the business cycle our

discussion in the previous section affords scope for synthesis and integration. Penrose

supplements Hymer in explaining endogenous growth, the internal generation of advantages and

partially the direction of expansion. Hymer discusses pull and push factors for diversification.

OLI also addresses the issue of location. Throughout the pursuit of long-term profit through

innovation and/or monopoly restrictions and oligopolistic interaction motivate and shape

decisions and choices.

Demand-side factors can be of the push type or of the pull type, or both. On the push side,

declining domestic effective demand, low expected rates of profitability and growth can be

important. From the pull side, faster expected growth rates and/or profits abroad can be seen as

locational advantages, see Dunning (1998). When the two are combined, with demand declining

at home alongside accumulated retained profits and other ownership or monopolistic advantages,

there remains almost no other choice. Despite the fact that such factors are often underplayed in

the literature, demand-side considerations are often implicit in other theories and they usefully

complement Hymer’s explanation of product-life-cycle-based domestic diversification.

Explicitly demand-side questions from the point of view of the firm also enter Vernon’s (2003)

‘product life cycle’ hypothesis. In Vernon’s approach, products are seen to have a life cycle with

three main phases: introduction and growth, maturity, and decline. In the first phase production

takes place at home, for various reasons, such as the need for careful control and monitoring of

the market. In the second phase the product becomes standardized and given that it is already

somewhat known abroad through exports, FDI is contemplated. In the third phase, FDI becomes

inevitable, as tariffs tend to constrain further exports. Scale economies tend to be exhausted at

home and servicing foreign markets becomes very difficult.

Vernon’s theory has been attacked as an inadequate account of post Second World War Two

MNE activities, for example by Buckley and Casson (1997) on grounds such as the difficulty the

theory has to explain non-export substituting investments, the appearance of non-standardized

products being produced abroad and the case of carefully differentiated products to suit the local

market. Another potential criticism of the theory is that the decline in the rate of growth of

demand in the maturity phase can be avoided through unrelated diversification to products at a

different phase of their cycle. In this sense, conglomeration can be seen as an answer to the

vagaries of the product cycle, as in Hymer (2001). The aforementioned criticisms derive from the

focus of Vernon’s approach to demand for the individual product, not aggregate demand. The

aggregate demand deficiency argument applies to all firms, at all phases of their products, albeit

to different degrees of severity, depending, among others, on the phase of the product cycle. FDI,

in our framework, can be seen as firms’ reply to the vagaries of the ‘business cycle’, thus giving

rise to a genuinely ‘all weather company’. In this sense, the aggregate demand argument goes

beyond, and survives the criticisms of the product cycle theory.

However, it is not claimed here that demand-side, business-cycle-related considerations provide

a new theory of the MNE. One needs to bring together all issues raised in this paper; failing or

missing markets, differential firm advantages, locational factors, oligopolistic interaction and

more. In the context of this paper, and building on Penrose, the MNE is a firm. Its explanation

requires a theory of the growth of the firm and limits to growth, plus a justification for the

special importance of national state boundaries. The theory of (limits to) growth is the Penrose

an one. It is compatible with, and complements Hymer. Both need to be complemented with

transaction costs related arguments, in order to explain more adequately the choice of mode.

Locational factors can be one factor that separates national from inter-national diversification.

Demand-side, business-cycle-related considerations are also important. They can be seen as

another international location advantage, a pull and push factor for FDI, in firms’ pursuit of

being ‘all weather companies’. Endogenous constraints as in Penrose, alongside oligopolistic

interaction, can explain the limit to the growth of the SMEs.

At one level, citing supportive evidence in favor of the above is easy. Caves (1996) cites a

voluminous literature in favor of transaction-costs and resource-based insights, Dunning’ overall

work provides a wealth of evidence on advantage-related, transaction costs and locational

factors, Zander (1999) provide evidence if favor of Penrose an insights. Cantwell (2000) cites

evidence in favor of the Penrose-related technological accumulation arguments. It could be

possible to claim that taken together, the above evidence also supports the individual parts of our

proposed synthesis. If we accept the above argument, for the time being, the question then turns

to the role of demand and business-cycle-related factors.

2.3 Empirical Reviews

2.3.1 Promotional strategies that can be used to improve small and medium sized

enterprise performance.

The main objective of promotional strategy is to increase customer base which encouraged

greater usage of sales promotion. Others are launching of a new product and to offset the

marketing efforts of Competitors, Ziegler (1999). Although other promotional strategies were

appropriately employed before this time, findings revealed that there has not been any definite

number of years for adopting each strategy. Although sales promotion is used, it is not used

extensively. Other sales promotion strategy used includes money off-free premiums at point of

sales free mailing, coupons, sampling, self liquidating offers, bonus packs displays and consumer

sweepstakes. This view is aptly made clear by Inyanga (1998).

The study identified that firms study the sales promotional campaign/strategies of competitors.

This is necessary in other to understand the competitor and design a defensive strategy that can

counter the campaign of competitors. Aham (2008) identified this trend as a reasonable method

of defensive promotional strategies. The effectiveness of sales promotional campaign cannot be

overemphasized. The study revealed this when 214 respondents representing 77% of the total

respondents represent show the effectiveness. The result of this as revealed by Ziegler (1999) is

increase market share, increase customer base, increase income profile, and general improvement

in the operation of the organization. On a general note the majority of respondents were of the

view that the use of sales promotion has changed the level of performance. It was observed that

the number of respondents who study the sale promotion strategy of other firms were greater

than those who do not study the sales promotion strategy of there competitors.

In the business world, according to Caves (1996) lasting relationships require that both buyers and

sellers benefit. Sellers benefit simply by receiving payment for products or services exchanged.

Buyers, on the other hand, profit only to the extent that their specific needs or desires are

satisfied. A common business problem is that consumer preferences are constantly changing. To

keep abreast of these changes, it is critical to maintain open lines of communication between you

and your customers. Effective communication is a two-way street – the business and its

customers communicating with each other. From the business perspective, a tangible way to

communicate customer value is to offer financial incentives for returning to your store, such as

providing price discounts on certain product lines, or offering free application or consulting

services with large purchases.

The rationale is quite simple. Pass on the cost savings acquired from repeat customers or risk

losing their business. From the other perspective, customers should know that your business is

aware of their expectations and is sincerely concerned with their ultimate satisfaction. Caves

(1996) further asserts that a simple but effective way to do this is to survey important clientele at

least quarterly to acquire input on key aspects of your business offerings. For example, did the

product or service meet their expectations? If not, how could it be improved? What products or

services would they like to see that are not currently being offered? This sends a clear message

that their input is important, and over time it will provide your business with valuable

information on changing consumer preferences.

According to Cantwell (2000), pricing is controlled by the forces of supply and demand. As

market forces increase demand, prices increase. Products and services can be divided into two

categories: price sensitive and price insensitive. Buyers will shop around for a low price on

price-sensitive items. As prices decrease, volumes sold will increase. Purchase decisions on

price-insensitive goods are governed more by quality, uniqueness, and appearance, and less by

price. The category that products and services fall under depends on how much they are needed

or wanted by consumers. Cantwell (2000), generally speaking, those items that are critical to

maintaining day-to-day living will be price insensitive. Conversely, in the event real incomes

fall, less essential, leisure-type items will be the first to experience a decline in consumer

demand.

2.3.2 Promotional Methods Used By the Small and Medium Sized Enterprises.

The sales promotion methods chosen by a firm should have a target market whose it is going to

at particular time. As explained by in Inyanga (1998), the promoter (Banks inclusive) may focus

attention on final consumers of his products/brand to encourage them to buy a particular product

brand. It is important to state here that sales promotion programmes should be undertaken after

the firm has considered the following issues:

Surveying the items that current customers are purchasing, which items are purchased most

frequently, or only occasionally? Do you have enough of the most popular items on hand? Are

there other products, supplies, or equipment that you should have in stock? The message is

simple—find out! From a customer's point of view, there is nothing more frustrating than

travelling across town to obtain needed merchandise only to be disappointed by learning you

happen to be "out of stock." When this happens (and it does), a cardinal business rule has been

broken, with costly consequences. By not carrying the products or services desired, customers

are compelled to look elsewhere. Even worse, alert competitors will do everything they can to

add your customers to their customer base Ziegler (1999).

Advertising is the economical and informational incentives, which are offered by firms to

buyers or distributors (Paul, 1999). It emerged as a reaction by manufacturers’ marketers, and

marketing strategies alike to find a short term solution to the problems of excess stock of goods

which are available in variables manufacturer’s warehouses but are not demanded by consumers

and organization (Aham, 2008). There are several media used when advertising for instance,

radio can be used to reach as many people owning this device as possible, television, magazines,

journals and newspapers can be used as modes of advertising.

Kotler (1997) expresses that free samples to prospect customers consist of adverse collection of

incentive tools, mostly short-term, designed to stimulate quicker and/or greater purchase of

particular brand, products, or service by consumers or the traders. In a similar fashion,

road shows according to Ndupu (1999), cited by Anah (2008), opined that as always been of the

variable strategies of making quick sales and help to establish brander names and ginger trail

purchases.

A newsletter is an excellent way to maintain contact with your customers, particularly your

regular customers. A newsletter both personalizes your advertising strategy and looks

professional. Your newsletter might incorporate some of the following ideas. Give the newsletter

a practical focus by including information based on frequently asked questions (e.g., keep

readers abreast of current or impending legislative rulings on the sale of selected pesticides, and

provide information on the correct application of fertilizers or the safe handling, use, and

disposal of dangerous chemicals) Ziegler (1999). Discuss those items you wish to promote,

particularly over-stocked or slow-moving products. Promote your firm by becoming involved

with the community and supporting special programs, attending seminars, or devising in-store

demonstrations. The point is simple attract customers by developing a positive image as an

educated, responsible, and concerned member of the local community. A newsletter offering

practical solutions to environmentally sensitive issues will also go a long way towards making

that image credible.

According to Ndupu (1999), to stay ahead, businesses will need to distinguish themselves,

primarily with superior service. No business can survive long without satisfied customers.

Consider these sobering statistics. In their book, "Customer Centered Growth", Whiteley and

Hessan (1996) note that 96 percent of unhappy customers never complain and 90 percent of them

will never return. In addition, most unhappy customers will tell their individual stories to at least

nine other people and 13 percent of those unhappy (former) customers will tell their stories to

over 20 people.

Commercialisation on the hand is described as any form of non personal communication

through the mass media that is paid for by an identified sponsor (Nwokoye, 1999). This agrees

with Baker (2002) who explained that commercialisation is any paid form of non-personal

presentation and promotion of ideas, goods or services by an identified sponsor.

Personal selling offers responses to consumers to be aware of the existence of a product; sales

promotion gives the consumer the reason to make the purchase. In a bid to out sell competitors,

retailers offer gifts to customers who would rather buy or purchase a product which they will get

something free rather than to by another product and achieve nothing. This is also useful in times

of slow or sluggish sales (Nwokoye, 1999).

2.3.3 Effectiveness of the Various Promotional Strategies in Improving the Enterprises

Performance.

Giving free samples to customers as a form of promotional strategy, enables the prospect client

have confidence with the product and feel appreciated hence creates the desire to have or buy

more of the product. This form of promotional enables the client to inform others on benefits of

the particular product Bielder, (2008).

Commercialisation as a promotional strategy reaches a huge number of people depending on

the media used. For example, commercial breaks during a favourite program enables people get

knowledge of new products in the market hence attracted to it Bielder, (2008)

Personal selling on the other hand, ensures face to face and close contact of the of the seller with

the buyer hence assisting in maintaining the relationship and the customer who again acts as a

good will ambassador to the business by promoting it even more to others, Ziegler (1999).

Aham, (2008) asserts that enormous human and material resources are devoted to advertising.

Advertising is everywhere in today's world, so that, as Pope Paul VI remarked, "No one now can

escape the influence of advertising." Even people who are not themselves exposed to particular

forms of advertising confront a society, a culture other people — affected for good or ill by

advertising messages and techniques of every sort.

According to Bielder, (2008) advertising is a waste of time, talent and money an essentially

parasitic activity. In this view, not only does advertising have no value of its own, but its

influence is entirely harmful and corrupting for individuals and society.