The exponential growth of trade liberalization, the global economic policies, the uncertainty in international markets, and the lack of competitiveness of the Mexican business sector, have had negative impact over the Mexican SMEs, over the past three decades. In this sense, the lack of competitiveness is the main reason why 80% of SMEs fails in the first five years and 90% during the ten first years.
Competitiveness is an imperative issue for all the countries in order to maintain or increase high levels of income and employment, and it can only be achieved through diversification, keeping away from the dependence on primary–commodity products and moving up to marketing and branded products.
This research investigated the problem of the loss of competitiveness of Mexican SMEs, from the point of view of marketing and brand management, and its main objective is to find the kind of marketing management and branding deficiencies, which are preventing the competitiveness of Mexican SMEs against the global competition.
A triangulation methodological approach (quantitative & qualitative) was used, included questionnaires and group interviews with Mexican SMEs business leaders, in order to get first-hand information of the real Mexican business environment.
The extensive review of literature has shown the enormous lack of knowledge about marketing principles and branding in Mexican SMEs, causing that most of these companies which remains focused only in production and manufacturing, rather than marketing, obtaining low levels of profitability, and making them vulnerable to the international business environment.
TABLE OF CONTENTS
Chapter One: Introduction
1.1 Introduction
1.2 Overview Mexican SMEs
1.3 General Objective
1.4 Specific Objectives
1.5 Research Questions
1.6 Conclusions
1.6.1 In Mexico Marketing is Commonly Confused With Advertising
1.6.2 Limited Use of Marketing Research
1.6.3 SMEs Should Focus Their Efforts in Marketing, Rather than in Production
1.6.4 Mexican SMEs are Over-Focused In Pricing Strategy
Chapter Two: Review of Literature on Branding and Brand Management
2.1 Introduction
2.2 The Importance of Marketing for Mexican SMEs
2.3 The Cultural Problem of Mexican SMEs
2.4 Branding Strategies and Brand Management on SMEs
2.4.1 Mission/ Vision
2.4.2 Business Definition
2.4.3 Values, Philosophy and Company Culture
2.5 Topics Still Uncovered of Brand Management and Their Effects on SMEs
2.5.1 Employer Branding and Personal Branding
2.5.2 Balanced Scorecard and Their Relation With Brand Strategy
2.5.3 Nation Branding
2.5.4 The Dynamic Approach of Branding, Marketing Mix and SIVA
2.5.4.1 Product –Solution
2.5.4.2 Price and Value
2.5.4.3 Distribution Channels – Access
2.5.4.4 Promotion- Information
2.6 Conclusions
Chapter Three: Research Methodology
3.1 Methodological Approach
3.2 Justification for Triangulation Method
3.3 Quantitative Research
3.4 Qualitative Research
3.5 Data Reliability
3.6 Conclusions
Chapter FOUR: Presentation of Results
4.1 Introduction
4.2 Findings of Quantitative Research
4.2.1 Legally Registered Brands in SMEs
4.2.2 Mission and Vision Statement
4.2.3 Establishment of Marketing Plan in SMEs
4.2.4 Key Performance Indicators and their Alignment with the Brand Strategy
4.2.5 Marketing Concept Since the Perspective of SMEs
4.2.6 Brand Positioning and Strategies in Mexican SMEs
4.2.7 Competitive Advantage of SMEs
4.2.8 Investment in Marketing and Brand Development
4.2.9 Most Important Issues About the Brand Management
4.3 Findings Qualitative Research
Chapter Five: Analysis of data
5.1 Analysis Framework
5.2 Summary of the Research Qualitative and Quantitative Data
Chapter Six: Conclusions and Recommendations
6.1 Conclusions
6.1.1 Do Mexican SMEs Have Legal Registered Brands?
6.1.2 Do Mexican SMEs Already Have Marketing/ Branding Strategy?
6.1.3 Do SMEs Align Their Corporate Mission and Vision with Their Brand strategy?
6.1.4 Do SMEs Really Know The Importance of Brand Management of the Company’s Success?
6.1.5 What is The Percentage of the Budget Expended for Brand Development?
6.1.6 Have SMEs Realized The Importance Between Brand Strategy and Their Key Performance Indicators?
6.1.7 Do SMEs Know About the Correlation Between the Brands and the Marketing Mix Variables?
6.2 Recommendations
6.2.1 Strategic Orientation
6.2.2 Product Innovation
6.2.3 Price-Value
6.2.4 Marketing Channels as a Strategy for Brand Building
6.2.5 Human Resources Management and Branding Strategy
6.3 Limitations of the Present Study
6.3.1 Lack of national coverage
6.3.2 Lack of Technological Resources in SMEs
6.3.3 Reduced Time to Complete the Questionnaires and Interviews
6.3.4 More Qualitative Research Will be Required
6.4 Concluding Remarks
References
Appendix: Questionnaire
List of Tables and Figures
Table 1: Distribution of Socioeconomic Levels in Mexico
Table 2: Distribution of Socio-Economic Levels in Mexico by Income
Table 3: Balanced Scorecard in Mexican SMEs
Table 4: Marketing Mix and SIVA Model Contrasted
Table 5: Classification of Mexican SMEs According to the Number of Employees
Table 6: Number of SMEs According to Their Size
Table 7: Sample According to the Size of Each Type of SME
Table 8: Sample of Interviewed Executives by SME
Table 9: Alignment Between Mission- Vision and Brands
Table 10: Example of a BCG Matrix as a Strategic Tool for Brand Performance
Figure 1: Marketing and Sales Concepts Contrasted
Figure 2: Differentiation as the Source of Competitive Advantage
Figure 3: Statement of Direction as the Framework of Marketing and Branding Strategy
Figure 4: Dynamic Relationships Between Customer and Employee Satisfaction
Figure 5: US Perceptions of Mexico
Figure 6: Product Level Model
Figure 7: Method Proposed for Pricing in SMEs
Figure 8: Factors SMEs Must Consider In Price Fixing
Figure 9: Growth of Latin-Market in the United States
Figure 10: Integral Model for SMEs Development
Figure 11: Shows the Percentages of SMEs Interviewed
Figure 12: Mission and Vision Statement in Mexican SMEs
Figure 13: Mission and Vision Alignment with the SME Brand Strategy
Figure 14: Establishment of Marketing Plan in SMEs
Figure 15: Daily Application of Marketing Plan
Figure 16: Key Performance Indicators Applied within SMEs
Figure 17: Key Performance Indicators and Their Relation with Brand Strategy
Figure 18: Marketing Concept from the Perspective of Mexican SMEs
Figure 19: Best Strategies in order to Position the Brand in the Customers
Figure 20: Competitive Advantages of SMEs
Figure 21: Percentage of the Annual Budget Assigned to Brand Development
Figure 22: Best Way to Measure the SME’s Customer Satisfaction
Figure 23: Best Way to Measure the Business Strategy for SMEs
Figure 24: Most Important Issues When a New Brand is Launched to the Market
Figure 25: Best Strategies for a New Brand-Product
Figure 26: Most Important Issues About Branding
Figure 27: Perceived Values of the Mexican Brands
Figure 28: Solution-Product-Matrix
Figure 29: Price-Value-Matrix
Figure 30: Place-Access-Matrix
ACKNOWLEDGEMENT
This research would not have been possible without the support, advice and generosity of many people and organizations that have contributed to this project in a variety of ways. I would like to express my gratitude to:
- My family members, my mom, my bother, my sister, but specially to my dad, Miguel Angel Martínez, who always thought me the values of hard work and honesty, this paper is dedicated to you, with all my love,
- My wife, Enriqueta Negrete, for all your patience and love during the dissertation process,
- Maricarmen Negrete, for all your love, support and advice during the development of this research,
- Dr Roger J Davies, My Dissertation Advisor, for all the support, guidance and infinite patience during the development of this research,
- Dr Sandra Mohabir McKinley, My faculty Manager, for sharing me all her valuable experiences that added value to this research,
- Áine Ní Riain, My extraordinary Student Support Manager, for all her support and advice during my MCs program.
- MBA, Linda Nava, Academic Director at UVM, Mexico, for your unconditional friendship and support.
- All the owners and CEOs of Mexican SMEs, which enthusiastically collaborated in this work.
ABSTRACT
The exponential growth of trade liberalization, the global economic policies, the uncertainty in international markets, and the lack of competitiveness of the Mexican business sector, have had negative impact over the Mexican SMEs, over the past three decades, In this sense, the lack of competitiveness is the main reason why 80% of SMEs fails in the first five years and 90% during the ten first years.
Competitiveness is an imperative issue for all the countries in order to maintain or increase high levels of income and employment, and it can only be achieved through diversification, keeping away from the dependence on primary –commodity products and moving up to marketing and branded products.
This research investigated the problem of the loss of competitiveness of Mexican SMEs, from the point of view of marketing and brand management, and its main objective is to find the kind of marketing management and branding deficiencies, which are preventing the competitiveness of Mexican SMEs against the global competition.
A triangulation methodological approach (quantitative & qualitative) was used, included questionnaires and group interviews with Mexican SMEs business leaders, in order to get first-hand information of the real Mexican business environment.
The extensive review of literature has shown the enormous lack of knowledge about marketing principles and branding in Mexican SMEs, causing that most of these companies which remains focused only in production and manufacturing, rather than marketing, obtaining low levels of profitability, and making them vulnerable to the international business environment.
Chapter One: Introduction
1.1 Introduction
The importance of SMES around the world is undeniable, especially for those countries with emerging economies.
The reasons are obvious: the number of these companies is higher compared with the large Multinational Enterprises (MNEs) in each country, the important number of jobs generated through SMEs which is the most important source of income for most of the population, and finally the several market niches it serves, largely comprised by consumers of the lower socioeconomic levels and which commonly is a market unattractive for MNEs. According to the Mexican Association of Marketing and Public Opinion Research Agency (AMAI, 2010) In Mexico, 60.4% of the total population of the country is ranked between Medium Low Class (D+), Low Class (D), and Lowest Class (E) which represents an estimated potential market of 67,842,845 consumers, The following tables show the detailed classification of the socioeconomic levels in Mexico and their currently Income in USD:
Table 1: Distribution of Socioeconomic Levels in Mexico
illustration not visible in this excerpt
Source: AMAI (2010)
Table 2: Distribution of Socio-Economic Levels in Mexico by Income
illustration not visible in this excerpt
Source: AMAI (2010)
The data presented above clearly demonstrate the enormous market opportunities that have not been properly exploited by SMEs or even for MNEs, this situation had been warned some years ago by C.K. Prahalad in his book: “The fortune at the bottom of the pyramid: Eradicating poverty through profits” where he explains that in countries such as China, India, Brazil and of course, Mexico, MNEs recognize that only 5 to 10 percent of the population represents a new market opportunity, leaving behind the other 90 or 95 percent.
However, although this potential market is a reality, SMEs are still fighting a difficult battle against their own lack of competitiveness, facing important challenges in order to survive in an increasingly hyper-competitive environment where technological development has played an important role in the globalization of the markets. In this sense, the democratization of the information technologies and digital communications, especially, internet, as well as the development of new digital social media has generated deep changes in the social, political, legal and economical external environment, which have triggered the international competitors in local economies.
At the same time technology also has permeated the way consumers behave, changing their habits, customs and ultimately the way they make their purchasing decisions; in other words, technology is the new driver of a complete new commercial reality where global markets are prepared to compete in a worldwide-scale of standardized products and taking advantage of economies of scale and making them almost an indestructible rival in their cost structures, pricing, management and marketing.
This is a real threat for SMEs, because they historically have faced important disadvantages compared with MNEs in terms of technology development, financing, management training, marketing and cash flow, making almost impossible that they can compete on equal terms.
1.2 Overview Mexican SMEs
The exponential growth of foreign direct investment (FDI) since the entry into force of the North America Free Trade Agreement (NAFTA) in 1994 has had positive and negative outcomes for the country, the international agreement has had positive effects over the manufacturing sector which is largely comprised by large foreign multinational enterprises, leading Mexico to be one of the most important manufacturing countries in North America.
However, the negative impact of this agreement has been reflected over the Mexican SMEs which were not prepared for large-scale trade liberalization, making almost impossible to compete against foreign multinational enterprises due the larger cultural, technological and managerial divergences between them.
Initially, the promise was that this agreement would increase the productivity, competitiveness and job generation in the country (Gallagher & Zarsky, 2004) however, this was not entirely true, because although NAFTA has increased the job generation over the time, this growth has been up almost exclusively generated by foreign multinational enterprises, which currently represent only less than 30% of the total formal jobs in the country, leaving behind SMEs, which represent over 35% of the gross domestic product (GDP) and contribute with over 70% of formal jobs in Mexico. (Mexican Ministry of Economy, 2011)
For the former statements, the author really thinks that SMEs are extremely important for the national economy and, unfortunately they face a lack of competitiveness causing that 80% of these companies fail in the first five years and 90% during the ten first years.
In this sense Small and Medium Sized Enterprises cannot succeed if their products are similar to other products in the market, for this reason companies must adopt an appropriate brand strategy allowing them to create brand differentiation able to generate and increase the business value over the time (Kotler, 2009).
In Mexico there are some success stories of companies that began operations as SMEs, therefore, they have become in large multinational enterprises, for example: CEMEX, Bimbo and Corona Brewery Co. So the question is: How have these companies evolved over time to become in global MNEs?
In order to find out the answer, we must consider that the real distinction of these companies is based, in the way they manage their marketing and specifically how they manage their brands.
Well managed and positioned brands allow organizations to sell products with a higher price, increasing their revenues, profits, and finally the total value of the company.
However, to achieve this, SMEs must learn how to create and manage their brands properly through the different marketing mix strategies. In other words: brands must be analyzed through the eyes of product, price, place and promotion variables as well as from a strategic organization focus.
Some studies conducted by (Khan & Edge, 2009) have shown that employees of SMEs play an important role in the brand building. That is why, this research will give an entire chapter dedicated to employees and their key performance indicators (KPIs) as well as their incentive plans in order to know the relationship with their brand strategy.
From the author´s point of view, the real problem of the competitiveness of Mexican SMEs is that they still operate in the same way than 30 years ago, through an informal familiar management structure and important market focus absence, for this reason, one of the most important factors in order to achieve development and competitiveness of Mexican SMEs is the change of their corporate culture and conservative- management style for a new one, which allows these companies to adopt a completely new market approach.
This is what this research proposes to Mexican SMEs: to Investigate the specific lack of Marketing management skills in order to produce a complete brand management guidelines directed to Mexican Small & Medium Sized Enterprises.
1.3 General Objective
In one way, it would be necessary to investigate the perception and knowledge of Mexican SME entrepreneurs and CEOs about to the importance of brand management as a strategic tool for the business development and success in a long term, on the other hand to develop a theoretical framework able to create a complete brand management guideline for SMEs.
1.4 Specific Objectives
- Determine if Mexican SMEs entrepreneurs are already legally registered brands.
- Determine if Mexican SMEs already have a brand strategy.
- Determine if the brand strategy of the company is aligned with the core strategy.
- Determine if the brand strategy is properly aligned with the mission and vision of the company.
- Determine if Mexican SMEs entrepreneurs know about how to measure the performance of their brand strategies in terms of costs, sales, revenues and profits.
1.5 Research Questions
- Do Mexican SMEs have legal registered brands?
- Do Mexican SMEs already have a marketing/ branding strategy?
- Do SMEs align their corporate mission and vision with their Brand Strategy?
- Do SMEs really know the importance of brand management of the company’s success?
- What is the percentage of the budget expended for brand development?
- Have SMEs realized the importance about the connection between the brand strategy, and their Key Performance Indicators?
- Do SMEs know about the correlation between the brands and the marketing mix variables?
1.6 Conclusions
The author concludes that Mexican SMEs are facing two major challenges which can be summarized in two important questions: Will Mexican SMEs will be able in order to defend their markets against the increasing entry of global brands?, Can Mexican SME´S will be able to create and develop strong global brands?
The author thinks that Mexican SMEs must go not only after a high purchasing socio-economic level and instead of these; they have to look over the middle class, lower middle class and low class, since they represent about 85.4% of the consumer market in Mexico.
The problem is that MNEs are beginning to target these middle and low-end markets, through the development of multiple brands. This is the reason why SMEs will come out and defend these markets. However, to achieve these SMEs must develop their skills in innovation, differentiation, branding and service. In other words strengthen their marketing. However SMEs must really understand the marketing concept and avoid misunderstandings. According to (Kotler, 2009) there are still some problems about how marketing is conceptualized by the Mexican entrepreneurs:
1.6.1 In Mexico Marketing is Commonly Confused With Advertising
One of the main problems is that marketing is commonly confused with "advertising” and “promotion" and is often seen in terms of expense and not as a long-term investment; in fact they also spend large amounts of money on advertising which commonly lead to premature bankruptcy.
1.6.2 Limited Use of Marketing Research
Although, SMEs entrepreneurs already know about the importance of marketing research it is true that they do not trust it.
According to a study conducted by the Center for Mexican marketing information (CIMM, 2009) about 40% of Mexican SMEs do not use market research in order to improve their sales and expand its profitability. In fact, they consider it “unnecessary” due their belief that “business instinct” is more reliable than scientific research.
The CIMM study also explains that about 37% of the executives surveyed consider that they have a complete ignorance about the marketing research benefits, and 30% consider that it is a financial problem and lack of budgeting and 26% consider that marketing research is not necessary at all.
In this sense, it is important to realized, that in Mexico the minimum cost of a basic market study is priced between $ 1,920 USD- $2,700 USD, and for more complex study the price commonly exceeds $3,000 USD.
The author thinks that while market research could be expensive for these companies, it is an excellent “thermometer”, useful to know what kind of strategy will apply in order to satisfy the consumer needs. However, the fact is that most of SMEs do not even know where their competitors and consumers are and how this affects their business performance.
They are not aware either about the importance of a customer’s data base and marketing intelligence as an important asset of their business. The fact trying to implement marketing and branding strategies without the backing of marketing research is especially dangerous due the increasing of global competition.
1.6.3 SMEs Should Focus Their Efforts in Marketing, Rather than in Production
Since the entry of NAFTA, Mexican companies are mainly focused in manufacturing activities rather than marketing and brand development. According to this, the Mexican manufacturer of Levi´s jeans gets only a 10% of the final price of $61.53 USD, which is paid by a customer of a Macy´s department store; the retailer gets about 60% and the brand owner gets 30%.
In the example above, the Mexican manufacturer has no defense if the Levi’s brand owner decides to change to another “less expensive” manufacturer, e.g. China, putting the Mexican SMEs in a vulnerable position against their global competitors. According to the author, Mexican SMEs must take the next step to become from a simple manufacturer to a complete brand developer, in order to increase their profitability and achieving long-term competitive advantage.
They must follow the way of other companies such in India, not only focused in production and engineering, but also focused in marketing and branding.
1.6.4 Mexican SMEs are Over-Focused In Pricing Strategy
As mentioned at the beginning of this chapter, 80% of the SMEs in Mexico fail before the first five years, and SMEs executives should not ignore these statistics.
According to the Mexican Ministry of Economy (SE, 2011) one of the reasons why they fail is the “belief” that to succeed in business is an imperative to establish lower prices than competitors. Most SMEs managers believe that lower prices could help to get high sales volumes; this is partially true, especially in the commodities markets. An interest phenomena, is that important brands had become generic brand names, since customers don’t perceive important differences in the product attributes.
The fact of implement a low price strategy as the only alternative is very dangerous over the time, since it can erode the brand equity, as well as the financial condition of the company in the short-term. In addition this strategy will put SMEs in a serious disadvantage position against their global competitors with a usually greater financial capacity and risk margin.
Another negative practice of SMEs is to set their “price strategy” only based through a pricing benchmarking, this is very risky, because stronger competitors with better products and brand recognition, may force SMEs to keep or change their prices (usually to lower price), this could lead in to a “Price War” which generally lose the weaker company, in this case the SME.
For this reason, Mexican SMEs must understand that the only way to achieve an increased and sustained market share is through differentiation of the product attributes, rather than low prices, since at the end, customers do not take their buying decisions only in pricing.
The permanent low price strategy usually kills innovation and differentiation, if low prices were the solution to all the marketing problems, then, there was no reason for research and development departments, and there was no reason for a positioning strategy and branding.
Finally, the most important issue is that SMEs, should know about the overall strategy of their competitors in order to determine a 360° integral strategy, able to create a significant differentiation in the marketplace.
Chapter Two: Review of Literature on Branding and Brand Management
2.1 Introduction
Branding, brand management, marketing strategy and SMEs, are issues which commonly appear in several academic literature, as well as industry, government and national and international press.
The author has realized that there is an extensive literature about: SMEs, marketing, emotional marketing, market- segmentation, branding, brand management, strategic organizations, international business, cultural dimensions, organizational culture among other topics related to this proposal.
As it was mentioned before the entrance of the NAFTA in 1994 plus the progressive effect of globalization in emergent economies have given an important strike over the SMEs (Prashantam & Birkinshaw, 2008), in this According to (Fliess & Busquets, 2006) some of the problems that SMEs have faced over the years are related to the lack of financing, trading barriers, included unfavorable foreign rules, inadequate property rights protection, restrictive technical and management standards where SMEs are particularly vulnerable.
These management standards are clearly ruled by three important elements: finance, operations and marketing. The author will focus on the importance of marketing and brand management, in order to help SMEs to become over the years in a competitive Multinational Enterprise.
However, to achieve this, the author assumes that beyond all this restrictive financial, technical and trading barriers, Mexican SMEs will also face an important challenge with their cultural adaptation in order to become competitive, especially in a completely new global and changing environment. Cultural adaptation is an issue that has not been analyzed in depth and which has an important impact over the SME´s branding strategies.
2.2 The Importance of Marketing for Mexican SMEs
It would be impossible to explain the success of any company without the presence of marketing, but, what is marketing? And why is it so important? According to the American Marketing Association, (AMA, 2011) marketing can be defined as the activity, set of institutions and processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large.
Other definitions may include marketing as a complete philosophy of doing business (Lafferty, 2001) considered as a “mindset”, an “attitude”, a way to conceive business through different managerial processes, able to satisfy the customer wants and needs and which can be considered the central ingredient of a successful organization.
As technique marketing is defined as the specific way to implement a long- term exchange relationship, which main objective is to identify, create, develop and serve the demand (Santesmeses, Sánchez & Valderrey, 2003).
Finally, marketing can be explained through two interdependent perspectives: managerial and social perspectives (Kotler & Keller, 2009) the first refers to the marketing seen as an important function within the organization, which cannot be separated from other important departments and functions of the company such: finance, operations, human resources and top management. From this perspective, marketing is seen as “holistic approach” where “everything matters”, where the business is seen as its final reason of existence: to generate wealth for shareholders through customer satisfaction.
In this sense marketing is also focused as a social process that looks to establish long- term social ties with consumers, intermediaries, suppliers, government, and other key participants in the value chain, creating strong economic, technical and social ties between them, however, this has not always been the focus of marketing, history has shown that marketing has evolved over the time, from an early approach with strong emphasis on production and sales to a modern market- oriented approach.
While In the old sales approach, where, organizations needed to make great and often expensive promotional efforts in order to “persuade” customers to buy enough products of the company.
According to (Levitt, 1986) this approach is centered more on the sellers needs, rather than the customer needs and commonly fails to establish long term relationships and customer satisfaction.
It is possible that this sales approach still “works out” today for some large multinational enterprises, e.g. Coca Cola or Procter & Gamble, which can spend millions of dollars to persuade customers to buy a new brand or product and even they can afford a brand- product failure, however this is something that SMEs cannot afford due their financial weakness.
The author assumes that one of the reasons why 80% of Mexican SMEs fail in the first five years is the lack of market orientation. According to (Kohli & Jaworski, 1990 cited in Kara, Spillan & De Shields, 2005), market orientation is defined as an “organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of intelligence across departments, and organization-wider responsiveness to this intelligence”.
In other words, the market orientation approach not only provides with insightful information about the customer’s habits, preferences and buying behavior, but also provides information about the external micro-macro environment including: competitors, social, cultural, political , legal and technological issues that may affect the customers and the company in the long term. For this reason, the market approach is an imperative for all kind of companies, but especially for those SMEs which are seeking for a competitive advantage and superior performance (Kara, Spillan & De Shields, 2005).
Figure 1 explains the marketing and sales concepts contrasted in the marketing evolution:
Figure 1: Marketing and Sales Concepts Contrasted
illustration not visible in this excerpt
Source: Kotler & Keller (2009)
Mexican SMEs have decided to remain in the early stages of the marketing evolution where the priority is to produce and sell products and services which usually no one has asked for, trying to get sales and revenues through an intensive and expensive advertising and promotional campaigns, in order to persuade potential customers to buy what they don’t want and need. While this approach may result in sales and revenue growth in the short term, the fact is that these business practices could undermine the brand equity and the financial health of the company in the medium and long term.
Mexican SMEs are still determined to continue avoiding in creating a long-term customer relationship. Why?
2.3 The Cultural Problem of Mexican SMEs
The author assumes that the problem of this “marketing myopia” is strongly associated with Mexican’s culture, which had not evolved as fast as the modern marketing concept has evolved. According to (Hofstede, 2011) Mexico has virtually no long- term orientation, therefore is not a surprise that the concept of creating medium and long-term relationship with clients and consumers is contrary in a culture whose nature is “short-term oriented” and where general managers SME´s CEO´s are systematically encouraged to apply a short sighted strategy, fast-production of revenues only focused for increase sales at any cost and in the shortest time possible, even if this strategy means the destruction of the brand equity, profits, and finally the total value of the company in the medium and long term.
SMEs should not continue with a strategy where the customer satisfaction and value- generation is the last issue and is not important at all, where the important fact is only to achieve fast-revenues through an extensive coverage strategy, rather than stimulate them across positive experiences, which over the time will become into a positive word of mouth, able to detonate the re-buying process and the creation of customer- value, brand loyalty and profits through customer satisfaction.
Likewise the high score of Mexico’s uncertainty avoidance (82) causes an important innovation resistance, overruled process that not always helps to take better decisions on the correct time.
Mexico’s power of distance dimension causes that most of the marketing decision process within SMEs, are usually taken under a centralized and rigid hierarchical organizational structure, usually comprised by the same relatives of the company founder, where top management positions usually have been given more by ascription rather than by achievement and where new ideas and innovation are not easily accepted, causing the company become unable to compete efficiently against MNEs whose main strategy is precisely innovation and constant renewal of its brands and products.
However, it is interesting to remark that many MNEs, which operate in local markets, are largely composed of the same employees, managers and CEOs´ sharing the same local cultural patterns, so the question is: Why these national cultural patterns seem not to affect MNEs marketing performance?
The author believes that organizational culture in many of these MNEs is powerful, and eventually it imposes over the patterns, habits and customs of the local- national culture.
This situation allows employees to adopt this new corporate culture to collaborate efficiently and effectively in order to achieve the organization’s marketing objectives and strategies. In contrast, Mexican SMEs usually suffer a lack of organizational culture which causes that national culture permeates over the organization structure.
In this sense, a research conducted by (Zurcher, Medow & Zurcher, 1965, cited in Smith, Dugan & Trompenaars, 1996) found out that Mexican employees are much more particularistic than their counterparts in the US.
(Trompenaars & Hampden-Turner, 2000) explain that in particularistic cultures like Mexico, relationships are favored over the rules, making almost impossible to establish a real brand management performance, for this reason, the author believes that there must be congruence among brand Identity, organizational culture and finally the founder ideology.
2.4 Branding Strategies and Brand Management on SMEs
Branding is defined as a marketing principle relevant to the entrepreneurial for stimulating demand and creating competitive advantage” (Abimbola, 2001). At the same time (Kotler, 2009) stated that: “companies cannot succeed if their products are similar to other products in the market”. Therefore, companies must adopt an appropriate brand strategy allowing them to create differentiation and authenticity in order to become relevant.
According to this, the real distinction between a successful organization and a failure lies heavily in how organizations manage, but especially how they manage their brands. (Levitt, 1986, p. 87). Meanwhile, (Beverland, 2005 ) Argues that ´”Authenticity requires brand managers to downplay their overt marketing ability and instead locates their brands within communities and sub-cultures”; so brands should become as another member in communities and must be capable to generate timeless values, so it is impossible to separate the brand identity from the founder ideology, corporate culture, national culture and management.
The reason is very simple: the founder’s leadership and his philosophy are the bricks through which organization builds their corporate culture that over the time becomes a brand Identity.
Companies must create their brand positioning through a real congruence among all these elements. This is confirmed by several authors research, the one of (Berthon, Holbrook and Hulbert, 2003) who explained that: “To manage their brands effectively, companies must not only take much more the traditional customer-centric view”, while (Khan & Edge, 2009) has stated that employees of SMEs play an important role in the brand strategy building.
In this same way, the results of the research conducted by (Martine & Hamzaoi, 2010) explained that the SMEs founder’s values and beliefs, as well as the country of origin image are important elements for strengthening the core competencies to be developed and communicated through the brand strategy.
Most managers recognize the importance of marketing and branding strategies for the success of SMEs, however, there is still a lack of knowledge about what the strategy is and how to create it. According to (Garrido, 2004) business strategy is strongly linked with war and politics, this fact is considered as a basic element of business in terms of “confrontation” with other companies, or simply against the external business environment.
In marketing management and branding, as in war, strategies consistently reduce the gap between the organizational objectives and the resources, in order to achieve competitiveness. From this point of view the word “troops” is replaced by the word “resources" just to obtain a very real concept of the business world.
So the strategy becomes an action plan, but performed tactically. It is a resource or a set of interrelated shunting, which are not always planned in advance to respond to the unforeseen events and hostile environment forces (Corey, 1978, cited in Dolan, 1995).
This analogy between war and business strategy is useful to understand the value of the business strategy in marketing and branding, where the battlefield is the market, including the macro environment factors such as political, legal, economic, technological, social and cultural variables.
Other definitions of strategy, which contradict this analogy, are those explained by (Chan & Mauborgne, 2005) who proposed that companies should move away from competition (red oceans) and focus on markets where there is no competition (blue oceans).
Although this is an interesting proposal, the authors have forgotten that all products and brands with a high degree of innovation and differentiation have virtually no direct competition when they're introduced to the market for first time.
However, as time goes by, they will due to hyper-competitive market in which they operate. In addition, environmental factors are unavoidable and the company and its strategy will always be linked to them in a constant battle.
Therefore, there are many ways to define strategy, the author really believes that the strategy itself is much more than simply definition by which the organization can achieve its corporate objectives.
According to (HBS, 2011) “strategy is art and science” at the same time, it is an art, because in many cases the creation and development of the marketing strategy requires a high degree of “creative thinking”, and at the same time the ability to collect and analyze specific information to create possible future scenarios, which can be defined by a visionary leader, who would be able to inform to the rest of the organization and "inspire" them to implement and develop it.
Without strategies there is no clear direction for the company, and over time will become vulnerable to the rapid changes in the environment and competitors. However, if the organization sets its marketing strategies in a correct and creative way, it will provide valuable information for that managers and executives, helping them to define their work- plan, to generate the structural changes related to the way the company does business and the way which it can achieve differentiation from competitors.
Figure 2: Differentiation as the Source of Competitive Advantage
illustration not visible in this excerpt
Source: Kotler & Keller (2012)
Due to the previously explained, it is very important that each SME will establish a “corporate statement of direction” which represents the structural framework where the corporate strategy will be born.
All the marketing and branding strategies must play a central role in this corporate strategy, and the reason is that it is the responsible of revenues generation for the company. The other components of the overall strategy, such: finance, manufacturing, operations or R&D, will represent only additional ingredients that must support the marketing mission.
For this reason, it is an imperative that during the development process of the marketing strategy the CMO always keep in mind the "statement of direction" which is commonly established by the senior management of the company, the owner or the company founder.
These elements are explained in the figure 3
Figure 3: Statement of Direction as the Framework of Marketing and Branding Strategy
illustration not visible in this excerpt
Source: Harvard Business Publishing (2012)
2.4.1 Mission/ Vision
Defined as the purpose of the company that is composed by beliefs, culture and values, which are transmitted by the founder to the rest of the organization, and which are the basis for the competitive advantage.
Mission and Vision establishment is one of the most difficult steps in the strategic planning process. Organizations are created to fulfill a specific purpose, for example: some of them could be a soft drinks, tequila or beer manufacturers.
However SMEs managers must understand that the mission/ vision of the company cannot be established only based on markets or industry, instead of this they have to define their business in terms of customers' needs and wants.
Another common problem is that most of the top management on Mexican SMEs, has quickly forgotten the reason why they started their business, and consider the mission and vision declaration as “something” that is taken from an academic book, something that is “fashionable”, and most of the time considered as “useless”, something that is not related with the daily business operations. On the contrary, SMEs must understand that the mission statement really represents and operational framework for how and where, the strategy will be implemented.
A well- established mission must includes the vision and the direction statement that the company will take in the future, and this is the reason why it should be dynamic, because it can change over the time in order to adapt the company strategies to a totally new reality environment and the new market opportunities.
That’s why SMEs should start from a flexible long-term oriented mission; however this can be really hard, especially due to the short-term cultural orientation that afflicts Mexican SME entrepreneurs. The author thinks that all Mexican SMEs entrepreneurs have to put an “extra mile” and asking themselves different questions that may be useful to determine the organizational mission /vision of their business and aligning them with the marketing and branding strategies.
According to (Drucker, 1992) some of these questions must include: What kind of business are we in?, Who is our customer?, What is the expected value for our customers?, What will be our business in the future?, This exercise may seem very easy, however it requires a great amount of analysis, creativity and in some cases, must include a small dose of “humility” by top management.
According to the author, it is incredible that also some MNEs such: Kodak, Nokia, Blockbuster, which supposedly have all the marketing intelligence and financial infrastructure have failed to respond to the external business environment.
This suggests that the problem is not only financial or because of technical resources, but it could be a problem of cultural & behavioral issues, which could include: fear, arrogant behavior, selfishness, ethnocentric approach, among others, which usually blinds senior management to recognize when and how the organization needs to change their business model.
Fortunately, Mexico has few examples of how a SME that had become in a MNE through a successful and flexible mission/ vision adaptation. These success examples should be analyzed by every SME which pretends to become in a MNE.
Coca Cola bottler in Mexico (FEMSA) which initially started as SME had realized their mission-vision previously implemented during its founding, as “the largest bottling of soda drinks in Mexico” had fallen behind.
Nowadays, the mission and vision of FEMSA are largely focused not only in a determined market or competitors, but on the “consumer’s stomach” and their preferences for healthier beverages, triggered by the rising obesity, diabetes and heart diseases that affect Mexican population.
For this reason, the company has implemented an important diversification strategy of their brands and products, which has enabled them to achieve an important competitive advantage of 80% of market share against their direct competitors.
This was achieved, by the simple issue of being flexible and worried about listening at the consumer concerns and the market and environmental changes, however, the most important issue is to take action and to implement the correct marketing strategies at the correct time.
In addition to this, every mission & vision statement should begin with a perspective of the future and SMEs should ask themselves: What does the customer keep them delighted and fascinated over the time?
This is not just a semantic difference, SMEs should really understand that brand- loyalty and customer preferences require them to a totally renewed and significant sales experience for their customers; this is only a matter of consistency and congruence between mission, vision and strategies.
2.4.2 Business Definition
Composed of the products and brands current and projected in the future, included services, geographical distribution, technology, customers and market.
SMEs entrepreneurs usually define their business around the products they manufacture. This could be a mistake, since products and services could change quickly over the time, due to the dynamic changes in the business environment. Instead of this, SMEs should focus on the constantly changing needs and wants of customers. According to (Levitt, 1986) the business definition always will be above of product ones, in this same sense (Kotler, 2009) defines it as a process of customer satisfaction, and not a manufacturing process.
To illustrate this, it is enough to remember the sad end of the Kodak Inc, which was unable to adapt itself to the new technological changes in the photography market, causing that top management team was not able to make on time the important changes in their business definition in order to adapt their business strategy to the new market environment.
The lack of consistency between the business definition and implementation of a wrong strategy, as well as the rapid changes in the photographic industry, especially during the transition to the digital era, were the factors that accelerated the premature extinction of Kodak.
What is clear is that the definition of business should not be established only in the product itself, beyond this, should focus directly on the customer’s expected solutions.
2.4.3 Values, Philosophy and Company Culture
Organizational culture is defined as a standard set of values and beliefs that help individuals to understand the organizational functioning, and thus provides a set of standards of behavior within the organization. (Deshpande & Webster, 1989) these beliefs and norms are transferred to the DNA brand which commonly is perceived through the organizational culture.
According to (Drucker, 1954, cited in Deshpande & Webster, 1989), culture is defined as a set of beliefs and values, which put the customer at the center of all strategies and operations of the company.
This is an important issue, since a weak organizational culture, irrevocably will transfer their weaknesses to their products and brands, In this sense, it would be impossible to imagine Apple Inc, without their innovation culture, which is transmitted through the stores, services and employees of the firm.
For this reason, values, philosophy and organizational culture of the firm, should remain linked to the branding and overall marketing strategies, and must be consistent and congruent with their business operations and employee behavior.
For this reason, employees and their competencies play an important role, since they are ultimately responsible for delivering their organizational culture through the brand identity.
2.5 Topics Still Uncovered of Brand Management and Their Effects on SMEs
2.5.1 Employer Branding and Personal Branding
The importance of employees and their competences are an imperative in the branding process; it is also called “Employer Branding” (Berthon, et. al, 2005). The employer branding is defined as targeted long-term strategy to manage the awareness and perceptions of employees and relates stakeholders with regards to a particular firm (Sullivan, 2004, cited in Backhus & Tikoo, 2004).
However, beyond this human resource approach, there is little research about how employees had become an important driver of the brand strategy.
The author thinks that employees are the most important brand representative, their attitudes and behavior toward the brand, the firm and the customer, are important elements in order to give a human personality to the brand.
This is why both, the brand personality and the employee personality are merged for an excellent performance of the marketing and branding strategies.
Therefore, it would be impossible to conceive an enterprise like Disney, without their smiling and friendly employees, or a sales representative of Weight Watchers with overweight, and the reason is that every brand needs credibility, the kind of credibility that only a human being can provide to the customers.
Employer branding must establish the identity of a firm or a brand as an employee, including its own satisfaction.
This is very important, especially for SMEs, since the customer experience, organizational culture and brand strategy cannot be separated for the overall marketing strategy.
Figure 4: Dynamic Relationships Between Customer and Employee Satisfaction
illustration not visible in this excerpt
Source: Kotler & Keller (2009)
Figure 4, explains the relationship between employees who are satisfied with their jobs and their relationship with customer satisfaction. This relationship is closely related to a quality environment at work, and the link between employees and what the brand represents to customers represent an important issue in order to create brand value and profits over the time.
From the author's perspective, SMEs must hire highly motivated employees, vocationally oriented to service, before seeking employees with a “high degree of skills”, since competencies can be acquired through training. However vocation and self-motivation can not be taught, since they are intrinsic to each individual, in this sense, an employee qualified not always will be a motivated employee.
Employees who are happy, motivated and enthusiastic, about the brand and the company where they work will create a positive word of mouth within the organization, strengthening the internal and external brand image of the company.
2.5.2 Balanced Scorecard and Their Relation With Brand Strategy
Essentially Balanced Score Card (BSC) is a performance evaluation system which links the vision, mission and core strategy of the firm with its daily operations. (Kaplan & Norton, 1996), this evaluation is carried out by measuring the different key performance indicators (KPIs) for each department within the organization.
A recent study conducted in Mexico by Madero & Peña in 2009, clearly demonstrated that Mexican SMEs, do not have the minimum management tools (Including BSC) in order to be competitive in a global market.
From a sample size of 30 SMEs, the researchers also found deficiencies in other important management tools, including: Mission & Vision Statement (4), Value Chain Analysis (21), Analysis of Business Portfolio (17), Strategic Alliances & Joint Ventures (14), and Balanced Score Card (27).
Table 3: Balanced Scorecard in Mexican SMEs
illustration not visible in this excerpt
Source: Madero & Peña (2009)
This research also demonstrates that only, three SMEs of a sample of thirty, will try to internationalize in the next 10 years.
A few SMEs that already have some kind of performance indicators have stated that they have faced problems with KPIS, since they have not respond directly to the business’s core strategy, on the contrary, they respond to the specific interests of the managers of each department, in order to achieve their own economic incentives.
From the author's experience, it is common to find a Mission-Vision and strategic objectives totally disjointed from the way the company measure the performance of their managers and employees.
2.5.3 Nation Branding
Nation branding has been defined as a country’s whole image, including political, economic, social, environmental, historical and cultural issues (AMA, 2012).
There is no doubt about the importance of a positive country image for a competitive advantage in a global environment, since a positive or negative nation brand will be inevitably transferred to the companies and brands of these countries, making them credible or not credible in international markets.
Some years ago, during a review of the Mexican-made sportcar Mastretta, the BBC’s television show presenter: Richard Hammond called the car in a derogatory manner, as the “tortilla car”.
Mr. Hammond also said that cars reflect national characteristics, and he refers to Mexicans as flatulent, lazy, feckless, overweight, leaning against the fence, a sleep looking at the cactus, among other unpleasant descriptions. (CNN, 2011).
From the point of view of the author, the country brand can not represent the whole of the national identity. In the same way of a product-brand, the country brand must be based on the attribute-based positioning.
The country brand can be created in two specific ways:
1 - As a response to the international market needs: in order to provide an identity to a particular product-category. This strategy could carry some risks, since the brand identity can be favorable or unfavorable to a particular national sector.
2 - The country brand can also be an initiative of the same country, as a marketing plan in order to build competitive advantage for a particular industry or product-category.
Positioning is constituted from the most significant attributes of the product, which has been offered to the international market. For example, in the car market, the Italian brand Lamborghini is strongly linked with tradition in design and aesthetics that Italians have inherited for centuries and which are already part of the country’s culture.
In the case of Mexico, the Mexican beer brand “Corona” has managed to capitalize all the good –perceived values of Mexico and has been reflected to their brands. In this sense, some attributes such: “joy”, “beaches”, “fun” are constantly reflected in their advertising.
Mexican SMES should carefully analyze if their products are according to the positive attributes of the country in order to strength their brand- value on international markets.
However, Mexican SMEs should also consider that, at this time the country-brand “México” is seriously damaged, and could have a negative effect on the brand positioning internationally.
A recent research conducted by Gallup in 2012, clearly demonstrates the damage of the Mexico’s perception in the past six years, which was caused by the increase in organized crime and drug war.
Figure 5: US Perceptions of Mexico
illustration not visible in this excerpt
Source: Gallup (2012)
Although, it is true that Mexico has faced serious problems of insecurity, corruption and drugs-trafficking, it is also true that there have been significant successes in managing its economy and foreign policy. Its privileged geographic location, as well as the large amount of natural resources could turn Mexico into a major player on the global stage in coming years.
2.5.4 The Dynamic Approach of Branding, Marketing Mix and SIVA
Everyone in the business world is aware about the usefulness of the well known marketing mix or 4 P´s (Product, Price, Place & Promotion) proposed by Jerome Mc Carthy in 1960.
Marketing mix are the basis for the development of marketing strategies, however in many cases these strategies based only on that model, fail in a spectacular manner, to illustrate this, it is enough to remember the marketing mistakes committed by the Coca Cola company in the launch of the New Coke in 1985, or the ones by PepsiCo, when they launch Crystal Pepsi in 1992, or the sonorous fail of Fruitopia in the 90´s decade, all of them were major business failures.
It seems that something is not right, why Coca Cola Company never asked if their clients wanted a new Coca Cola? Or Pepsi asked if consumers wanted a transparent Pepsi?
Some firms often lose their focus on customers and the obvious questions here are: why companies sometimes develop products or services that no one will buy? , Setting prices that no one will pay? , Waiting for profit margins they are not going to get?, With distribution channels that do not allow enough access to the clients, as well as advertising strategies that do not provide enough information to the customers.
From the author’s perspective it seems that the problem is that the 4 Ps or marketing mix has an inherent weakness: “its sidedness”, since product, price, place and promotion strategies are determined and controlled only by the top management within the organization.
These unilateral decisions could be very dangerous and expensive for any firm, because after having invested significant amounts in research and development, the brand may not be well received by customers, resulting in additional costs for its modification.
Therefore, SMEs require a market-centered approach, which represents a correct balance between the traditional marketing mix and customers. SMEs must analyze an alternative model known by its English acronym SIVA, Solution, Information, Value and Access (Dev & Schultz, 2005, cited in Dann, 2011); the SIVA model represents a customer-centered alternative to the traditional 4P´s approach.
Table 4: Marketing Mix and SIVA Model Contrasted
illustration not visible in this excerpt
Source: Kolter & Keller (2009)
2.5.4.1 Product –Solution
Nobody will buy your brand, unless it offers a real solution for the customer.
Every year companies spend millions of dollars on research and development in order to create new brands, products, services and technologies; however these do not always report real benefits to the firm and customers. In this sense, SMEs should stop looking for eccentric ideas that seem to be “innovative” and rather of that, they should focus on the following questions: What is the solution that customer is looking for?, How the firm could solve the problem? , How appropriate is the solution to the problem according to the customer wants and needs? Does the company have enough resources in order to provide the solution?
To achieve this, it is necessary a total congruence between the brand and the functional and psychological attributes of the product. It is common that Mexican SMEs implement inconsistent product strategies between the messages that the brand communicates to their customers, and what the brand can offer to them, this situation can lead to rapid loss of customers and revenues in the short-term.
However, it is difficult for some SMEs know, which one of the product attribute is the correct in order to offer the best solution for the customers, for this reason, the five product level model developed by Kotler in the 60’s could help to determine the best product attribute in a competitive market.
Figure 6: Product Level Model
illustration not visible in this excerpt
Source: Kotler & Keller (2009)
A product can be differentiated in many ways: service, packaging, specific intrinsic or extrinsic attributes, however, this differentiation is determined by the ability of the firm to innovate, as well as the conditions of the competitive environment.
It is true that many SMEs may not have enough financial resources to innovate at the core benefit level of product, since it usually requires technology development, and large financial amounts in R&D, however SMEs may focus in other attributes that may be equally or more valued by consumers.
Sometimes, the solution may be inexpensive and do not require a large amount of investment. According to the author’s point of view is just a matter of listening at the “voice of the customer”, for this reason, the company can take control in the decisions about the number of products, variations, line extensions, quality, durability, size, packaging , branding, among others. SMEs always must consider, the customers opinion, since they are the only ones, who decide which one of the attributes will really represent a real solution, in order to satisfy their particular wants and needs.
One of the most outstanding examples of this is the computer manufacturing company, Dell, who at the beginning of their operations, some years ago, decided to sell computers manufactured to the precise wants and needs of the customers, providing home- service as a solution. Perhaps Dell was not ready to provide consumers with greater speed and storage capacity on their computers, or a different operating system (Core benefits) because these attributes are controlled by their powerful suppliers such: Intel and Microsoft.
The solutions chosen by the firm must be able not only to meet the customer expectations, but they should exceed those expectations, in order to create a sustainable brand-value over the time.
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