Are SMEs falling behind the digital marketing development?

Abstract Submitted to the Direct/Interactive Marketing Research Summit Proceedings

October 12-13, 2013

Heini Lipiäinen
PhD Candidate, Jyväskylä University, School of Business and Economics,
heini.lipiainen@jyu.fi

Heikki Karjaluoto,
Professor, Jyväskylä University, School of Business and Economics
Are SMEs falling behind the digital marketing development?

Digitization has become part of our daily routines. It is shaping the traditional ways in which

consumers and businesses interact with each other. Digitization, and especially social media,

have been transformed consumer behaviour (Kaplan and Haenlein, 2010), with important

consequences for firms, products and brands. Digital marketing and social media provide

opportunities for small businesses (SMEs1) to attract new customers and reach existing

customers more efficiently. Literature shows that digitization in its various forms is positively

related to small business growth, performance and competitiveness (see e.g. Barnes et al.,

2012; Chong and Pervan, 2007; Galloway, 2007; Shideler and Badasyan, 2012; Spurge and

Roberts, 2005). SMEs can benefit from internet use by reducing costs (Chong and Pervan,

2007; Kaynak et al., 2005; Lohrke et al., 2006) and facilitating both internal and external

communication (Bharadwaj and Soni, 2007; Chong and Pervan, 2007; Eriksson et al., 2008;

Kaynak et al., 2005). In a recent study of 12 SMEs in the UK, social aspects of the web were

found to improve efficiency and enhance external communication (Barnes et al., 2012). It

should be clear that the utilization of digital channels is important for brands, and it should be

a progression that SMEs should follow if they want to stay competitive and grow.

The marketing reality of SMEs is far from that of large corporations and hence digitization is

a greater challenge for them. Firm size has a strong influence on the adoption, as the smallest

firms are the slowest adopters (Bordonaba-Juste et al., 2012; Teo, 2007). Large businesses are

more likely to have the required resources and knowledge to successfully adopt new digital

channels and tools (Barnes et al., 2012). In general, the research related to the adoption

1
In this research SMEs are defined according to the European Commission definition of small enterprises which
employ fewer than 50 persons and whose annual turnover or annual balance sheet total does not exceed 10
million euro (European Commission).

1
process of new technologies in SMEs has been widely covered (see e.g. Carroll and Wagar,

2010; Chatzoglou et al., 2010; Dholakia and Kshetri, 2004; Lohrke et al., 2006; MacGregor

and Vrazalic, 2005; Parker and Castleman, 2007; Proudlock, 1999). According to one

categorization, the reasons to adopt digital channels in micro-firms can be classified under

three main categories; 1) firm-specific and owner-manager factors, 2) resource-related factors,

and 3) environmental factors (Karjaluoto & Huhtamäki, 2010). These can act either as

facilitators or inhibitors of adoption.

Commonly, SME marketing techniques are informal, reactive and spontaneous (Gilmore et

al., 2004), and there is a considerable gap between marketing activity in a typical SME and

the best practices advanced by marketing theory (Parrott et al., 2010). SMEs are characterized

as strongly sales focused (Hill, 2001; Reijonen, 2010) and the main goal of their marketing is

just to create awareness of the firm and products (Reijonen, 2010). Strong sales focus might

arouse issues considering the fundamental nature of digital media where the relationship

building and two-way communication are essential (see. e.g. Ahuja and Medury, 2010;

Christodoulides, 2009; Cho and Huh, 2010; Hennig-Thurau et al., 2010; Kaplan and

Haenlein, 2010; Liu et al., 2011; Malhotra et al., 2013; Singh et al., 2008).

This study contributes to the understanding of SMEs marketing practices by investigating

digital marketing in the marketing mix of small companies. The study provides insights into

the utilization and benefits of digital marketing, and examines factors that facilitate or inhibit

the adoption and use of digital marketing channels in SMEs.

The data for this research comes from Finland which is ranked tenth in the world in terms of

internet penetration rate (ITU, 2013) with an internet penetration rate of around 90%. Hence,

2
Finland can be considered as one of the most digitalized countries in the world and thus

provide a suitable context the study digital marketing usage in companies. The data consists

of 16 interviews with managers in 13 SMEs and 421 survey respondents, who were CEOs or

other managers.

The study reveals that only 10 % of Finnish SMEs actively utilize digital channels in their

marketing. When viewed in the light of the penetration of the internet and social media usage

in Finland, the results of this research are rather surprising. The most utilized digital channels

are the company website, search engine marketing and social media in general. Online

visibility can be considered the most important element of the digital marketing mix as the

website and SEO (search engine optimization) were the two most used channels, although

neither was used very actively for marketing purposes. This finding is line with the previous

research on SMEs’ marketing goals related to the creation of awareness (Reijonen, 2010).

Social media was claimed to be the third most important channel. It was used in the same way

than other digital channels as a form of one-way broadcasting while attempting to drive sales.

The findings of the study show that digital marketing was still seen as one-way channel to

send marketing messages to potential and existing customers to drive sales, in contrast to the

emerging literature on the social aspects of digital channels and Web 2.0 (Ahuja and Medury,

2010; Christodoulides, 2009; Cho and Huh, 2010; Hennig-Thurau et al., 2010; Kaplan and

Haenlein, 2010; Liu et al., 2011; Malhotra et al., 2013; Singh et al., 2008).

Overall, it seems that SMEs have not realized the fundamental change in the nature of

communication brought about by digitization. In addition, opportunities for dialogue were

considered the least important reason to adopt digital marketing tools. Employing digital

marketing as a non-dialogical tool might mean that the companies are not using social media

3
and other digital devices efficiently and so are not fully exploiting the potential of the new

tools. This confirms that many SMEs are being left behind the wake of the rapid change in the

communications landscape.

The main reasons for the low utilization of digital channels relate to internal resources and

capabilities, especially owner-manager related factors. SMEs seem to be falling behind digital

developments. The often ad hoc nature of their marketing implementation suggests a lack of

knowledge of digital marketing. This study again confirms the importance of training key

marketing personnel within a company to use the new digital tools. Marketing managers

should be trained, but also both other mid-level managers and senior management, at least in

terms of the new order brought about by digitization. Companies should first understand this

new environment before they can utilize the full potential of the new social media tools (cf.

Fournier and Avery, 2011). The results stress the importance of digital marketing planning

and training of the whole staff on the new rules of digital media, especially social media.

Should we be worried about the results indicating low utilization of social media tools among

SMEs and the sales driven goals set for all digital marketing tools? The answer is complex.

Digitization of buyer behaviour is a progression that SMEs should follow in order to be able

to compete in the market of the future. The reality is that companies should make sure they

can be found online. That now requires far more than just setting up a website and optimizing

it for search engines. The dialogical nature of digital media does mean a fundamental change

in business practices not just doing marketing online. The worrying aspect of the results is

that SMEs are not aware that they could use digital channels in their marketing programmes.

There seems to be a requirement to improve knowledge of how the various channels available

4
can work together, and of their potential to benefit an SME. This is where researchers can

help SMEs to keep up with developments.

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