braning as a competitive advantage for smes

8/3/2019 Braning as a Competitive Advantage for SMEs

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Braning as a Competitive Advantage for SMEs

Angkana Anarnkaporn

E-mail: [email protected]

Abstract

The world of branding is clearly dominated by big businesses. Yet, in

developing countries like Thailand, small- to medium-sized enterprises (SMEs)

comprise the largest number of businesses in the economy. In order to provide a

clearer picture of the character of branding as a strategy in SMEs, this study exploredthe concept and degree of brand orientation in the SME sector. Seven key

components of brand activities were identified and tested on SME owners and

managers in various industries in Thailand. Next, the study investigated the

relationship between brand positioning strategies and bases of segmentation in a

SME business. Furthermore, this study examined the effect of each segmentation

base on the different strategic positioning options used by SMEs. The results show

that there is a significant positive relationship between brand orientation and five of

the brand activities. Furthermore, it was found that there is a significant positive

relationship between the level of segmentation and the four types of brand

positioning strategies. The findings suggest the combined use of both macro- and

micro-bases of segmentation in order to leverage similar strategic positioning across

global markets. However, micro-bases of segmentation are suggested for firms

seeking differential positioning strategies. An effective use of the proposed

framework will have salient implications for SMEs, including cost efficiencies,

opportunities to transfer products globally, expansion opportunities of current

operations, and development of more effective brand positioning decisions.

Introduction

A critical question many small- to medium-sized businesses (SMEs) often

ask is whether it is worthwhile spending a substantial amount of money, time and

energy in rethinking their marketing practices, adopting a strategic marketing

approach, and going through the branding exercise. Most SMEs may well subscribe

to the popular belief that strategic marketing and branding are the domains of large

companies and MNCs. Though tempted to reorganize their marketing practices and

adopt branding strategies, SMEs often do not have the financial, infrastructural and

human resources that enable them to do so. As a result, many are carried by the

inertia that dictates marketing to be selling and exists to support production. In

general, brand theories are usually about big companies and multinationals, since the

attention of brand management has been focused primarily on them. Open randomly


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any management book and more than likely you will find big companies like Procter

& Gamble, IBM, Unilever, McDonalds, Ford, or Coca-Cola being used as brandingexamples. It has left us with the unclear picture of where SMEs fit into brand

theories. When brand management is discussed in books or journals, SMEs are

hardly recognized or treated as a separate entity in spite of the fact that the majority

of all businesses belong to the small- to medium-sized enterprises group.

If that is the case, several questions concerning SMEs can be raised: if the

firm is small but has lofty ambitions, what should it do? Does strategic marketing

and branding really matter to SMEs? How can SMEs strategically rethink, reorganize

their marketing practices and strategies, and build brands on a small budget? These

are salient issues, which SMEs need to address.

The main purpose of this study is to provide an understanding of the role of

branding in creating competitive advantage in SMEs. The study is conducted onSMEs in Thailand that encourages free trade and is one of most dynamic economies

in the Southeast Asia region. This research hopes to provide insights and guidelines

for SMEs to follow in selecting appropriate strategies for their brands. The specific

objectives of this research are as follows:

1. To identify the level of brand orientation in SMEs.

2. To test brand activity factors in SMEs.3. To test relationships among brand activity factors related to brand

orientation level.

4. To test segmentation base factors in SMEs.5. To test the relationship between the level of segmentation and brand

positioning strategy among SMEs.

Branding Challenge for SMEs

Competition in the global economy becomes fiercer day by day, and as

technology advances, so does the competition. In order to survive, grow and

compete in this competitive climate, entrepreneurs of small- and medium- sized

enterprises have to study market conditions and implement effective strategies. Of

all the competitive tools available to SMEs, we argue that branding should be among

the top of the list.

A brand within a small geographic market has great opportunities to steal

market share from the gigantic global brands, with its ability to serve the customer in

a more flexible and creative way than its bigger counterparts. Stibel (1988) noted

that with a well-planned brand strategy, not only national but also small companies

could overcome the market competition. An example would be the case of

Community Coffee versus General Foods Maxwell House and Procter & Gambles

Folgers. Community Coffee, a small regional coffee roaster was losing its market

share to those national companies that have put enormously into national advertising.

After analyzing its strong and weak points, Community Coffee found a way to turn

an apparent weakness into a potent weapon. Its sales force was tied to a store-to-door


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sales/distribution system that was extremely expensive for the national brand

companies, but this system has enabled the company to be in contact with itscustomers on a regular basis. Accompanied by an aggressive program of trade

allowance and new product introduction, this regional coffee roaster more than

doubled its share in the regional market within two years.

Investment in media takes a great amount of money. This misconception has

led many SMEs to think that they only have to focus on product and price. Actually,

what happens is that the global brands are forced to invest heavily in media due to

their lack of ability to be present locally everywhere. The process makes customers

feel closer to global brands than the smaller brands that they are often physically

closer to. However, brand building is not done solely through advertising and media.

Advertising only plays a part in brand building. SMEs can use its closer physical

connection with the customer to create a compelling experience with the customer.They can emphasize their brands strengths and credibility with their customers and

reassure them that their small brand is the better option.

Many SMEs are sub-contracted to manufacture brand name goods for foreign

companies. When comparing revenue from subcontracted work or OEM (original

equipment manufacturer) with revenue earned from producing their own brand,

many differences can be noticed. Since the production base for many foreign

companies is selected based on lower labor costs, this carries a risk for manufacturers

who depend on these contracts, because in case labor costs are found to be cheaper

elsewhere they would lose orders and therefore revenue (Pehrsson, 2004). Hui and

Zhous (2003) study shows that when congruence between brand origin and country

of manufacture occurs, the latter information has no significant effect on product beliefs and global product attitude. When country-of-manufacture information

indicates that a branded product is made in a country with a less reputable image than

that of the brands origin, the information produces more negative effects on product

evaluations for low equity brands than high equity brands. Thakor (1996) asserted

that the origins cues are already embedded within many well-known brand names,

and that mere manipulation of country of assembly or manufacture probably does not

eliminate the effects of those cues. For example, a Samsung sound system or Toyota

car assembled in a country outside the country of origin may not stop people from

continuing to regard them as a Korean or Japanese brand respectively.

SME operators should create a distinctive brand for their products with the

objective of becoming accepted both overseas and within the country. Establishing a

respected name for products would give manufacturers the potential to compete in

the world market. One of the first things to ensure a strong brand is the quality of the

product. SME operators must pay attention to quality in order to satisfy customers

and build product confidence. Several marketing strategies can be employed to build

customer awareness, including the launching of public relation campaigns,

distribution of information about the products, and promotions emphasizing the

quality of goods and services. Customers will eventually accept and embrace these

products.


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SMEs in Thailand

In Thailand, a country with about 64 million people, the largest number of

businesses is comprised of SMEs. They are present in all economic sectors including

manufacturing, trade and service. Strengthening SMEs is a main issue to consider

when it comes to growth and income distribution in the country. The Institute for

Small and Medium Enterprises Development (ISMED) reported that SMEs in

Thailand represent over 90 percent of the total number of entrepreneurs in nearly all

business sectors, and employ over 60 percent of the labor force. Furthermore, SMEs

contributed between 38% and 39% of the total GDP in Thailand from 1999 to 2003.

In 2003, the value of industrial exports from Thai SMEs was over 45% of all

industrial products exported from Thailand. All these statistics underscore the huge

contribution of SMEs to the Thai economy.Unfortunately, many SMEs fail each year. According to the Thai Ministry of

Commerce, the failure rate was 69% in 2002. This indicates that business failure is a

huge problem among SMEs.

For a long time the Thai government has been focusing on an export-led

growth strategy, which means that the development direction of Thai SMEs is to

compete in the world market. Unfortunately, Thai SMEs suffer from the so-called

nutcracker effect: (a) in terms of production cost, especially labor cost, Thai SMEs

cannot compete with neighboring competitors that have lower labor cost such as

China, Indonesia, and Vietnam, and (b) in terms of product quality and technological

advancement, Thai SMEs cannot compete with their counterparts in Italy, Japan, or

Taiwan. Thai SMEs are using labor-intensive and old-fashion technology to produce

goods of the same quality as products from China and Vietnam, but with higher

production cost. Therefore, Thai SMEs are facing the problem of declining

competitiveness, which leads to the problem of limited access to capital as well.

Furthermore, SMEs have not been able to increase capital via stock markets because

of lack of expertise. Meanwhile, borrowing from commercial banks is very costly

and difficult.

Lack of creative entrepreneurship is another one of Thai SMEs weaknesses.

Most Thai SMEs are family-run and rely on the family members limited experience.

This traditional style of running a business may work well for the local market but is

usually far below the acceptable standard for the international market.Finally, SMEs have not been getting much help from the Thai government.

SME promotion has been under government consideration for many years. However,

government agencies are not ready to play an effective role in promoting SMEs. For

these agencies to be effective, several things have to be changed, including the

structure of organization and the capability of human resources in the public sector.

Currently, there are some obstacles for SMEs to access public facilities.

Nonetheless, the government is currently promoting industry standardization

and has assigned the state-run Thai Industrial Standards Institute to expedite issuing

certificates for products made by local communities so that they are acceptable by


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consumers while simultaneously upgrading products to globally acceptable

standards. The government has a firm policy to support the private sector in creatingbrands. In addition, it has become a driving force especially in the fashion industry

helping to create Thai Go, a brand name for Thai designers. These products are

now on sale and compete with well-known foreign brands. While the quality is

similar, the prices are quite different.

The public sector also has several plans to create strong Thai brands, one of

these being called Bangkok the city of fashion. If this plan is actually

implemented, many Thai entrepreneurs and products will be created. Creating

brands for goods is thus important for SMEs operators to take into consideration

along with building recognition. Hopefully, if SMEs operators can attach importance

to these factors, it would not be difficult for them to achieve success in their

businesses.

Theoritical Framework

Concept of Brand Orientation

The term brand orientation was first defined by Urde (1994) as an

approach in which the process of the organization revolve around the creation,

development, and protection of brand identity in an ongoing interaction with target

customers with the aim of achieving lasting competitive advantages. The goal of

brand orientation is: (1) to represent either functional or business-unit focus on

brands that support strong customer and stakeholder relationships regardless of the brand being at the corporate level or product level, or being a service or

manufactured product (Bridson and Evans, 2004), and (2) to enable an

organization to have a clear brand vision and identity.

Three developing trends - decreasing product divergence, increasing media

costs and integration of markets - are identified in the business world today as

causing brand orientation to become a competitive strategic choice (Urde, 1994). The

globalization and integration of markets have opened up large markets as well as

created the most competitive environment for business. Regional pacts such as the

European Union, the North America Free Trade Agreement, APEC, etc. have all

intensified the global competition. Neither multinational corporations nor

entrepreneurs are able to avoid the eventuality of global competition. Seen in this

light, a branding strategy seems to be the most effective way in differentiating ones

product, yet keeping ones marginal advantage. To achieve the full power of

competitive edge, companies should focus their strategy on brands, which can be

described as brand orientation. Brand orientation focuses on consumers' utilitarian

satisfaction. In order to achieve brand objectives, organizations need to manage their

internal and external activities to maximize value-adding capabilities beyond the

functional aspects, for example, a delivery of service and quality among customers

and other key stakeholders. The brand is the key to building customer loyalty in the


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marketplace, and all communications associated to the brand should be related to

appropriate competitive positioning and value. The brand and building brand equityare recognized as being significant factors in achieving positional advantage in the

market and, thus, financial benefits.

In general, the literature review revealed a paucity of scholarly activity on

brands and their management in the business sector, despite the fact that marketing

ideas have been applied to the business sector for at least 30 years (Kotler and Levy,

1969). Those articles that did exist, however, relied primarily on case study reports

and brand practice papers and few of them have mentioned brand orientation in the

SME context. Hankinson (2001) defined brand orientation as the extent to which the

organization regards itself as a brand. The author operationalized brand orientation in

terms of four core brand activities, namely: 1) understanding the brand; 2)

communicating the brand; 3) using the brand as strategic resource, and 4) managingthe brand. Based on these four themes, Hankinson developed a scale to measure

brand orientation. This research will adopt Hankinsons brand orientation scale to

study SMEs in Thailand.

Hybrid Segmentation Approach

Many early segmentation theories were based on macro-level factors such as

economic (Kotler, 1986); cultural (Whitlock, 1987); geographic (Daniels, 1987) and

technological (Huszagh et al, 1986). However, later studies found that the pre-

determined country bases were inadequate for segmentation when considered

without behavioral bases (Helsen et al, 1993; Nachum, 1994). A hybrid approach

that considers both country bases (macro-level) as well as buyer response bases

(micro-level) was found to be more realistic (Hassan et al, 2003). Hybrid

segmentation strategy was developed to identify the indicators/ attributes of brands

that are suitable for the implementation of global market programs (Helsen et al,

1993; Luqmani et al, 1994; Kale and Sudharshan, 1987; Kreutzer, 1988; Hassan and

Katsanis, 1991). Market segmentation must be examined in order to determine the

best brand positioning strategy. In this study, hybrid segmentation strategies were

utilized as a framework to evaluate four brand-positioning strategies, namely:focus

strategy, geo-centric strategy, operationalized strategy, and localization strategy.

Model & Hypothesis

Our research model captures the two important dimensions of a brand

strategy: the level of brand orientation and the level of segmentation. The level of

brand orientation is hypothesized to be associated with seven brand activity

variables: understanding the brand, brand management, influence upon others,

communicating the brand, brand communication tools, strategic use of brand and

brand objectives. The level of segmentation is hypothesized to be associated with

four strategic positioning types: focused strategy, geocentric strategy, optimization


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strategy and localization strategy. The research model is presented in Figure 1.

The first set of hypotheses (H1 to H7) was developed to explore therelationship between the level of brand orientation and the seven brand activity

factors:Hypothesis 1: There is a positive relationship between the level of brand

orientation and the level of understanding the brand (U) in SMEs.

Hypothesis 2: There is a positive relationship between the level of brand orientation

and the level of management of brand (M) in SMEs.


and the ability to influence others (I) to adopt a brand approach to their SME

business.


and the level of communicating the brand (C) in SMEs.


and the range of brand communication tools (T).


and the level of strategic use of brand (S) in SMEs.


and the usage of brand to fulfill a range of business objectives (O).

Since markets have evolved, a hybrid approach consisting of country bases

and buyer response base is found to be the appropriate approach (Hassan et al, 2003).

This approach helps identify and profile segments on an inter-market basis and

develop strategies to reach them with brands. However, a review of the literature

reveals a dearth of empirical studies that examine the link between segmentation and

strategic brand positioning, especially with reference to SMEs. In order to better

define the parameters of the relationship between brand positioning and

segmentation in SMEs, a second set of hypotheses was generated to examine the

relationship between market segmentation and brand positioning strategy:Hypothesis 8: There is a positive relationship between the level of segmentation and

focused strategy in SMEsHypothesis 9: There is a positive relationship between the

level of segmentation and geocentric strategy in SMEs. Hypothesis 10: There is a

positive relationship between the level of segmentation and optimization strategy in

SMEs. Hypothesis 11: There is a positive relationship between the level of

segmentation and localization strategy in SMEs.


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Methodology

This study uses a survey design. A questionnaire was developed to capture

information on three areas: demographic information, brand orientation, and brand

positioning. In Part 1, the respondents were asked general demographic questions

such as company position level, age, gender, educational level, and the industry in

which they work, and so on. Part 2 of the survey contained 30 Likert-scale items

measuring brand orientation, as developed by Hankinson (2002). Part 3 of the

survey contained 3 items, as developed by Hassan and Craft (2005): the first item

contained 14 macro-level segmentation base statements; the second item contained

22 micro-behavioral level segmentation base statements, and the third item contained

four brand positioning strategic statements.

In order to increase generalizability of the results of study, the researchertargeted SMEs from different industries. A total of 1,000 questionnaires were mailed

out and 517 were returned and used for analysis.

Data were analyzed by factor analysis to determine the number of brand

activity factors and segmentation base factors that are relevant to SMEs in Thailand.

For this purpose, principal component analysis with varimax rotation was used. The

factor analysis of 26 items generated 7 factors as follows: (1) Understanding the

brand, (2) managing the brand, (3) ability to influence others, (4) communicating the

brand, (5) brand communication tools, (6) the strategic use of brand and (7) the usage

of brand to fulfill a range of business objectives. Factor analysis on segmentation

base variables produced 7 factors: (1) macro-economic, (2) macro-cultural, (3)

macro-demographic, (4) micro-demographic, (5) attitude and usage, (6) micro-culture, and (7) brand loyalty. Correlation analyses were used to test the hypotheses.

The results are reported in the section below.

Results & Discussion

The results show that the majority of the survey participants were either

business owners or partners (59%), while participants occupying middle to high

management positions came in second (31%) and the remainder (10%) occupied

other positions. In terms of age, 31% of the participants were aged between 30-40,

30% between 40-60, and 21% between 25-30. With respect to gender, the

distribution was almost equal, with female participants accounting for slightly more

than 51% of the respondents. In terms of educational background, most of the

participants possessed at least basic college education. The majority had a bachelors

degree (37.33%) while those with a masters degree were a close second (34.82%).

Together these 2 groups accounted for over two-thirds of the participants. More than

half of the participants were working for SMEs that have in existence for over 10

years.


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In terms of brand orientation, the majority of the participating organizations

(50.29%) exhibited a medium level of brand orientation. 43.24% showed a highlevel of brand orientation while 6.47% were classified as having a low level of brand

orientation. With respect to the segmentation base factors, the results show that the

respondents considered all these factors to be either moderate or moderate-to-high

when looking at the market for their product and/or service. The localization

strategy was used the most followed by focused strategy, optimization strategy

and geocentric strategy. In summary, SMEs had indicated that the level of

segmentation is essential to some extent in considering the appropriate market for

their products and services. Attitude and usage were found to be the most important

segmentation factors while localization was the most frequently used positioning

strategy.

Brand Orientation vs. Brand Activities

The hypotheses in this study were tested using correlational analysis. With

regard to the relationship between brand orientation and brand activity factors, the

results show that 3 out of the 7 hypotheses were supported, that is, H1 (p


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focus on specific brand tasks so that a culture of brand centrality will develop

throughout the organization. Such a culture will enable the SME to compete moreefficiently in an increasingly competitive environment.

To a certain extent, this study confirms that brand orientation may play a

critical role in guiding a firms growth. The study also shows the relevance of

branding activities to SMEs. This research demonstrates that brand orientation can

be a positive force for brand-marketing performance. With the construct of brand

activities being clearly articulated, SMEs can now understand their own situations

better and implement the appropriate brand activities to guide strategic planning and

future market activities.

Segmentation vs. Brand Positioning Strategy

With respect to the relationship between segmentation base and brand

positioning strategy, all the hypotheses were supported, that is, H8 (p


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similar segmentation members are represented. Second, segmentation can create

opportunities for transferring products, brands and ideas across subsidiaries indifferent locations or regions. Finally, enhancing our understanding of market

segmentation strategies will pave the way for more effective brand management

decisions that may result in better market performance.

Conclusion & Significance of study

Since there is a little information on brand orientation and brand positioning

in SMEs, this study makes a significant contribution to the study of branding in the

small business and entrepreneurial sectors. All prior studies about brand orientation

have been conducted in Western countries. This study is the first that combined the

study of brand orientation and brand positioning among SMEs in Thailand.On a practical level, this study is expected to increase SME awareness of

salient brand activities such as understanding the brand, managing the brand,

influencing others to adopt brand approach, communicating the brand, the strategic

use of brand, brand communication tools, and the usage of brand strategy to fulfill

business objectives. Furthermore, by introducing the principle of segmentation-based

strategic positioning, this study will help SMEs choose the right strategy and the

right market to establish brands more efficiently, not only domestically but also

globally.

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braning as a competitive advantage for smes

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