SME Marketing - Marketing to SME's: The challenge and differences

It seems strange that many large organizations have only recently turned their attention to SME's as a potential source of customers considering that the SME dominates most economies. In Asia , we can see many firms such as Microsoft and IBM battle for share of this huge yet relatively untapped market. Another industry that is aggressively seeking share of the SME market is banking, a quick drive through the eastern tunnel confirms this as huge ads claiming company superiority in one form or another are prominent. All of these activities beg the question of whether marketing to SME's requires some adaptation of typical business to business marketing approaches and whether advertising and other traditional methods are effective and a good utilization of marketing resources.

From our own experience, anecdotal evidence, and other research, it seems that traditional approaches are not effective. One of the major differences can be highlighted by the decision process that businesses go through when purchasing new products. For example, a large firm buying new computer systems may go through very formal and extended decision processes that involve many people (known as the buying centre), however as the purchase is an organizational one, they are likely to be less involved than an SME manager as such a purchase is likely to be much more significant for an SME manager. Additionally, the buying centre in the SME is likely to be smaller and decision making less formalized and perhaps even rational. For this reason reliance on personal sources and opinions tend to influence the SME decision maker substantially when compared to their large firm counterparts.

Research by File et al (1992) into banking marketing practices targeted at SME's shows that are clear differences in the necessary approaches between these firms and larger organizations. They found that word of mouth and referrals were crucial factors in SME decision makers and their choice of service provider. This is mainly due to the increased perception of risk and involvement for the SME when compared to large firm employees purchasing on behalf of their organization. The idea that referrals are important is not new but there are many ways that a firm can stimulate positive word of mouth and reach certain groups within society who have a major impact on the SME manager. Financial advisors, accountants and other types of advisors can be extremely valuable for large firms when attempting to reach the SME. This requires a systematic programme of referral development and support that can add to the service scope of the referrer that benefits their own clients, that is the SME owner/manager. In the US, there are communities and groups known as buying communities that meet on an ongoing basis where like minded individuals can gather and share information related to their buying experiences and need, whether it be banking services or technology.

In Asia , this type of approach becomes even more crucial due to the collective nature of the cultures in the region which tend to find limited informative value in advertising and other mass media approaches. This has been shown in a number of research studies and when compared to western cultures and information provision, the Asian way is significantly different and this must be reflected in the way firms communicate with SME managers and decision makers.

One must also consider that many SME managers may not initially recognize that they have a need (latent) at that the recognition of a problem may be stimulated by a third party conversation such as with the firm's accountant or other advisor. This is not to say that other sources cannot be influential. For example, positive image created by media articles or even advertisements can be confirmatory for an SME manager but unlikely to move the decision maker through to purchase as they are most likely to ask informal sources for their recommendations and opinions.

So far this discussion has only focused on customer acquisition but retention and the ability to stimulate positive word of mouth is a make or break process for large firms reaching the SME market. The diagram below highlights that acquisition is only a beginning point.

There are a number of frameworks and tools that can be used to assess service quality and customer satisfaction, SERVQUAL (click here to access the SERVQUAL scale) is prominent among others. Additionally the literature on relationship marketing and the benefits of creating retention programmes is substantial, however, very little guidance exists on how best to manage relationships with SME managers as their needs and behaviour is likely to differ from individual consumers and large corporations, which form the basis for the majority of service quality tools available.

Again in the banking industry, Madill et al (2002) examined the relationship of SME customers and banks to identify critical determinants of satisfaction in this dyad. Although the research was conducted in Canada , it still holds certain implications for the management of these relationships in other contexts. The key findings can be summarized as below:

Satisfied customers much more likely to make referrals
Turnover of key account manager at bank affected satisfaction
The management of staff changes and communication with SME crucial
Account manager and branch staff affected satisfaction levels

There were also a myriad list of skills and service delivery items that concerned the SME manager which can be fundamentally linked to such issues as staff recruitment and training that impact the satisfaction levels reported. This research can be linked to many aspects of service marketing and management. Firstly, marketing and other functional departments cannot be separated and act in isolation. If customer acquisition rests fundamentally on referral and hence existing customer satisfaction, then an integrated approach carried out through the entire organization is critical in supporting the marketing efforts of the firm. Secondly, services literature tells us that managing expectations is critical in delivering customer satisfaction as gap between what people expect and what they receive affects their evaluation of service quality. This creates a problem for a large firm targeting SME's as word of mouth (WOM) promotion is by its very nature generally uncontrollable. Hence developing a comprehensive and well structured programme will be crucial in how potential referrers will describe the services you offer. Over promising and under delivering can create real problems.

The implications for the marketing organization in Asia when dealing with SME's are clear. Customer recruitment and retention is a self reinforcing cycle. In small collective places like Hong Kong where WOM marketing is so important, stimulating opinion leadership is crucial and maintaining long term satisfying relationships with customers is the crux that supports many promotional activities targeted at SME's. Traditional mass media promotions are still important as figure1 identifies, however, as the basis for a marketing campaign they are ill directed and ineffective. When targeting SME's, the importance of an integrated and well thought out approach is absolutely critical yet this is only the beginning of the marketing process that requires further referral activities and positive WOM.