ABSTRACT
This work determined the effect of competitive strategies on the marketing performance of selected Small and Medium Scale Enterprises (SMEs) in Abia and Imo States, Nigeria. The study adopted a causal survey research design. Five business areas namely table water, food and beverages, eatery and hotel, supermarkets as well as bakery and confectioneries. Twenty (20) SMEs were selected; 2 from each of these five (5) areas of the selected business. Two each was selected from each of the States of Imo and Abia respectively. A sample size of 250 was used which was computed from a population of 651 using Taro Yamene’s model of probability sampling method. Primary data was used which was sourced through five-point likert scale questionnaire administered to the respondents; which comprised the owners, managers and employees of the selected Small and Medium Scale Enterprises (SMEs) in the study area. Simple regression model was used to test the five hypotheses designed for the study. The competitive strategies adopted by the SMEs in the study areas were low-cost, market focus, differentiation, strategic alliance and combination or matrix strategies. The study revealed that these strategies significantly and positively affected their marketing performance through increase in cost advantage, customer patronage, customer loyalty, sales volume and market share of the SMEs that were studied. However, it was also revealed that the majority of those small firms that pursued a persistent strategy did not perform better than those that pursued combination or matrix strategies. This justifies that SMEs that followed a combination strategy outperform those ones with generic strategies, in terms of market share growth. The study therefore recommended the adoption of these competitive strategies, by SMEs in Abia and Imo States, Nigeria; specially the combination or matrix strategy because it is the hybrid that brings synergistic marketing performance at the long run. The study therefore suggested that, further studies should be carried out to identify and analyze the adoption of these competitive strategies in other small and medium scale enterprises. Such will help in the growth and survival of these SMEs; especially now that unemployment is ravaging the Nigerian citizens.
TABLE OF CONTENTS
Title page i
Declaration ii
Certification iii
Acknowledgments iv
Table of Contents vii
List of Tables xii
List of Figures xvi
Abstract xv
CHAPTER 1
INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 4
1.3 Objectives of the Study 6
1.4 Research Questions 7
1.5 Research Hypotheses 8
1.6 Significance of the Study 8
1.7 Scope of the Study 9
1.8 Operational Definition of Terms 10
CHAPTER 2
REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 12
2.1.1 Explanation of the conceptual framework 13
2.1.2 Competitive strategies defined 14
2.1.3 Industry structure analysis 15
2.1.3.1 Intensity of rivalry 16
2.1.3.2 Pressure from substitute products 16
2.1.3.3 Potential entrants 17
2.1.3.4 The buyer bargaining power 17
2.1.3.5 Suppliers bargaining power 17
2.1.3.6 Government policies 17
2.1.4 Cost leadership strategy 18
2.1.4.1 Out-souring 19
2.1.4.1.1 Supply chain management 19
2.1.4.1.2 Procurement 20
2.1.4.1.3 Collaborative buyer-seller relationship 20
2.1.4.1.4 Subcontracting 21
2.1.5 Penetration pricing strategy 21
2.1.6 Differentiation strategy 22
2.1.7 Market focus 24
2.1.7.1 Buyer handling strategies 25
2.1.7.2 Supplier handling strategies 27
2.1.7.3 Strategies for managing rivalry 27
2.1.7.4 Strategies for handling defenses 29
2.1.8 Strategic alliances 30
2.1.8.1 joint venture 31
2.1.8.2 merger and acquisition 31
2.1.8.2.1 Merger strategy 32
2.1.8.2.2 acquisition strategy 33
2.1.8.3 Franchise 33
2.1.9 Marketing performance 33
2.1.9.1 Customer satisfaction 34
2.1.9.2 Customer patronage 35
2.1.9.3 Customer retention 36
2.1.9.4 Sales volume 36
2.1.9.5 Market share 36
2.1.10 Market share growth strategies 37
2.1.10.1 Market penetration 39
2.1.10.2 Market development 39
2.1.10.3 Product development 39
2.1.10.4 Diversification 39
2.1.11 Profitability 40
2.1.12 Competitive advantage 41
2.1.12.1 Cost advantage 43
2.1.12.2 Differential advantage 43
2.1.12.3 Market advantage 44
2.1.13 Small and medium scale enterprises (SMEs) defined 45
2.1.14 Strategy clusters 48
2.2 Theoretical review 49
2.2.1 Structure-conduct-performance framework (Bain, 1968) 50
2.2.2 Porters five forces model (porter, 1980) 50
2.2.3 Cost-quality frontier framework (Shepherd, Saloner and
Pondolyn, 2001) 50
2.2.4 Sales and profit maximization model (Semion, 1980) 52
2.2.5 The assimilation theory of consumer behaviour (Anderson, 1973) 53
2.2.6 Bench marking model (Dess and Robinson, 1984) 53
2.2.7 The balance score card (Robert Kaplan and David Norton) 55
2.3 Empirical review 56
2.4 Summary and gap in literature 61
CHAPTER 3
RESEARCH METHODS
3.1 Research Design 63
3.2 Study Area 63
3.3 Population of the Study 64
3.4 Sampling Technique 66
3.5 Sample Size 66
3.6 Data Collection Method 67
3.7 Validity of Research Instrument 67
3.8 Reliability of the Research Instrument 67
3.9 Data analysis 68
3.10 Model specification 69
3.11 Measurement of variables 71
CHAPTER 4
RESULTS AND DISCUSSION
4.1 Questionnaire Administration 72
4.2 Personal Data of the Respondents 73
4.3 Analysis of research objectives 78
4.3.1 Objective one: effect of low cost on the cost advantage of the
selected SMEs in Abia and Imo states, Nigeria 78
4.3.2 Objective two: effect of market focus on sales volume of the
selected SMEs in Abia and Imo States, Nigeria 79
4.3.3 Objective three: effect of differentiation strategy on the customer
patronage of selected SMEs in Abia and Imo States, Nigeria 81
4.3.4 Objective Four: Effect of Strategic Alliance on Customer Loyalty
of the selected SMEs in Abia and Imo States, Nigeria 83
4.3.5 Objective Five: Effect of combination strategy on the market
share of the selected SMEs in Abia and Imo States, Nigeria 85
4.4 Hypothesis Testing 87
4.4.1 hypothesis one 87
4.4.2 Hypothesis two 90
4.4.3 Hypothesis three 92
4.4.4 Hypothesis four 95
4.4.5 Hypothesis five 97
4.5 Discussion of Findings 100
CHAPTER 5
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings 106
5.2 Conclusions 107
5.3 Recommendations 108
5.4 Suggestions for further studies and limitations 109
REFERENCES 111
APPENDICES
Appendix A: Brief history of selected small and medium scale enterprise 116
Appendix B: Questionnaire 118
Appendix C: Statistical Data 124
LIST OF TABLES
Table No. Title Page
2.1: Definition of SMEs by Nigerian Institution 46
2.2 Competitive Strategy and Industry Cluster 49
3.1: Tabulated Study Population 65
3.2: Pre-test results of crombach alpha reliability test 68
3.3: Post-test results of cronbach alpha reliability test 68
4.1: Response Rate of Respondents to the Questionnaire 72
4.2: Distribution of Respondents According to Sex 73
4.3: Distribution of Respondents According to Age 73
4.4: Distribution of Respondents According to Academic Qualifications74
4.5: Distribution of Respondents According to Status Category 75
4.6: Distribution of Respondents According to Type of Business
Enterprise 75
4.7: Distribution of Respondents According to Location 76
4.8: Distribution of Respondents According to Enterprise Competitive Strategy 76
4.9: Distribution of respondents According to Type of Strategic
Alliance adopted by the Enterprise 77
4.10: Distribution of Respondents According to Combination Strategies 78
4.11: Analysis of the effect of low cost on the cost advantage of the
selected SMEs in Imo and Abia States, Nigeria 79
4.12: Analysis of the Effect of Market Focus Strategy on the Sales
Volume of the Selected SMEs in Abia and Imo States, Nigeria 80
4.13: Analysis of the Effect of Differentiation Strategy on the Customer Patronage of the Selected SMEs in Abia and Imo States, Nigeria 82
4.14: Analysis of the effect of strategic alliance on customer loyalty of
The selected SMEs in Abia and Imo States, Nigeria 84
4.15: Analysis of the Effect of Combination Strategy on the Market
Share of the selected SMEs in Abia and Imo States, Nigeria 86
4.16: Model Summary of the Simple Regression Results for
Cost-Advantages 87
4.17: Co-efficient of Regression Results of the Effect of Low-Cost
Strategy on Cost Advantage 89
4.18: Model Summary Results of the Simple Regression of the effect
of Market Focus on Sales Volume 90
4.19: Coefficient of Regression Results of the effect of Market Focus
on Sales Volume 91
4.20: Model Summary results of the Simple Regression of
Differentiation Strategy on Customer Patronage 93
4.21: Coefficient of Regression Results of the effect of Differentiation
Strategy on Customer Patronage 94
4.22: Model Summary of the Simple Regression Results for strategic
Alliance 95
4.23: Co-efficient of Regression Results of the Effect of Strategic
Alliance Strategy and Customer Loyalty 96
4.24: Model Summary results of the Simple Regression of
Combination Strategy on market share 98
4.25: Coefficient of Regression Results of the effect of Combination
Strategy on Market Share 99
LIST OF FIGURES
Fig. No. Title Page No.
2.1: Conceptual Framework
13
2.2: Ansoff Market-Product Matrix 38
2.3: Cost and Perceived quality framework 51
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Small and Medium Scale Enterprises (SMEs) performance forms a very important part of the economy of any nation like Nigeria. This is because the performance and growth of these SMEs are major drivers and indices of the level of industrialization, modernization, urbanization, gainful and meaningful employment for all those who are able and willing to work (Albiodun & Harry, 2013). They are also significant in equitable distribution of income, bettering the welfare, increase in income per capita and quality of life enjoyed by the citizens (Aremu & Adeyemi, 2011). The essence of the study of the marketing performance of SMEs is because they contribute to economic growth, especially in the area of employment and income redistribution than larger firms (Farouk & Saleh, 2011). Therefore, governments around the world are developing, supporting and promoting SMEs growth as part of their overall national development strategy (Abdullah & Bin-Daka, 2010).
It has been established that it is through the growth of SMEs that some employees made redundant by large firms have been absorbed back into the workforce, thereby creating multiplier effect in the general economy. Employment provides income to regions which stimulate local economic activity; and as a result, drives wealth and further employment generations (Walker & Webster, 2014). These contributions and activities of the SMEs were designed strategies which allowed them to compete with the large scale enterprises in the face of global and domestic competitions. Thus, in order to compete and survive successfully, locally and globally, small and medium scale enterprises must not only be in business to enjoy the short-term profit maximization. Rather there is the need to design competitive strategies, and at the same time evaluate how these competitive strategies will eventually reflect in their marketing performance and sustainable competitive advantage at the long run (Walker & Webster, 2014).
Competitive strategies are those business and marketing strategies designed by a business enterprise to create and capture values in a target market relative to competitors (Al-Debel & Davidson, 2007). These competitive strategies are cost leadership, differentiation, market focus and strategic alliance strategies (Porter, 2012). These were seen as generic strategies, as were proposed by Porter in 1980; but recent business and marketing scholars have suggested other competitive strategies namely guerrilla and ambush marketing (Levinson, 2008); and other competitive strategies designed to gain market positions in a particular industry such as flanking, encirclement etc. (Afende, 2015).
However, Porter (2000) is of the position that any firm that needs to perform above average so as to gain and sustain marketing performance should choose one of the generic strategies as stated above. Conversely, any business attempting to combine any of these strategies invariably ends up “stucked-in-the middle. This position has been challenged by a substantial combination strategy proposed by other scholars (Oyedinjo, 2012; Porte, 2010); and this research sets out to support the second group. Members of this “combination strategy school of thought” have argued that, any business enterprise successfully combining low cost, differentiation, market focus and strategic alliance strategies will create synergies within the firm that would overcome any trade-offs that will be associated with the combination (Panel & Wright, 2013).
The synergistic effect of this combination approach to competitive strategies by SMEs to gain and sustain marketing performance and competitive advantage cannot be over-emphasized. This can be evaluated based on how these strategies can lead to increase in the basic areas of marketing performance namely: customer patronage, sales volume, profitability and market share as well as achieve market advantages in promotion, cost and customer loyalty overtime (as the basic indicators, if the major routes to competitive advantage; given core competencies, distinctive capability and technology) (Porter, 2012).
However, the sustainability of the combination of these competitive strategies and their synergistic effect on marketing performance and competitive advantage by SMEs has not been given serious scholarly attention in academic literature. Rather, some scholars have carried out researches on the effect of these strategies collectively on generic organizational performance of large firms, given so much attention on the financial indicators of performance namely: profitability, sales volume, return on equity, shareholders value, market share etc (Afande, 2015; Adeniyi, 2013). This implies that some of the current literatures did not treat the effect of these strategies on specific marketing performance indicators namely customer patronage, customer loyalty, sales volume, market share etc. Even when they are studied in this dimension, there is still paucity of studies on this as regards SMEs, especially in Nigeria (Afande, 2015; Adeniyi, 2013; Robert & Gathinji, 2014). It is therefore, the attempt of this research to study the effect of these competitive strategies on the marketing performance and competitive advantage of selected SMEs in Nigeria.
In the process however, the designing and the implementation of these competitive strategies are not usually easy to achieve; given the fragmented industry characteristics which prevail where the SMEs are operating or are intending to operate. The industry analysis model proposed by Porter (1980) should be adopted herein. Such will help to enhance the determination of the influence of industry characteristics on firm’s strategies and how these affect marketing performance of these SMEs; with special interest on customer patronage, sales volume, market share and profitability; including cost advantage, differential advantage and promotion advantage as indicators of competitive advantage.
1.2 STATEMENT OF THE PROBLEM
Small and Medium Scale Enterprises (SMEs) in Nigeria, as in many other countries of the world are characterized by stiff competition which has affected their performances in terms of growth and survival. This competition has been accelerated by globalization, product proliferation, trust, collusion and related business activities of the large (Oligopolistic) firms. The problem is that some of these SMEs do not design competitive strategies for their growth and survival. Even when some may seem to adopt any, it is just by trial and error; as some of their marketing strategies are mere imitations of the activities of the oligopolistic firms; while others operate on hunches (Afande, 2015; Adeniyi, 2013).
Whether the adoption of these competitive strategies in SMEs would facilitate marketing performance and sustainable competitive advantage is the primary concern for this study. As a consequence, this research was motivated, because various studies were noted to have given attention to large (oligopolistic) firms in other countries with paucity of literature specifically to Nigeria; and particularly the SMEs. For example, a study by Murrage (2011), focused on the competitive strategies in the petroleum industries in Kenya; a study by Gathoga (2001), focused on the competitive strategies by commercial banks in Australia; all geared towards the adoption of Porter’s generic competitive strategies in achieving organizational performance (Asara & Gathinji, 2014). Coming down to the Nigerian environment, Adeniyi (2013) carried out a research on how competitive strategies improved the performance of selected Nigerian Telecommunication Companies. In the area of SMEs, Sultan (2007) carried out a research on the competitive strategies of SMEs in Israel; also Sije and Oloko (2013) investigated the pricing strategies of SMEs in Kenya. In the same dimension, Obosede, Obasadan and Alese (2016) did a great research and reviewed the literature on strategic management and SMEs development across the globe; but no attention was given to the competitive strategies, not to talk of marketing performance and competitive advantage of these SMEs. All these researches had gaps in their relative studies. Some were on large corporation and not on small scale enterprises; while some that were on Small Scale Enterprises were neither on marketing performance nor domiciled in the Nigerian business, economics and marketing environment. It is based on these gaps on empirical literature that this research was motivated.
However, marketing performance and competitive advantage were the major dependent variables the study seeks to investigate; without neglecting the influence of industry characteristics in shaping and reshaping competitive strategies (Porter, 1980). Some scholars have combined the two concepts together; thus using competitive advantage as one of the indicators of marketing performance (Chak, 1998; Warrinach & Asif, 2013). Other authors have further analyzed the relationship between these two concepts, competitive advantage and marketing performance. The logic, for example Powell (2011), opined that, if one accepts the argument that a firm that achieves above-average long-term performance has a sustainable competitive advantage, it follows that every realization of long-term above-average performance indicates owning a competitive advantage. So, if the above hypothesis is accepted as true, the existence of firms that possess a sustainable, but do not realize the long-term above–average performance cannot be excluded. Hence, sustainable competitive advantage is a necessary but not sufficient condition for achieving above-average performance. On the other hand, if one accepts the proposition that owning a sustainable competitive advantage affects the long-term performance, it means that every firm that has competitive advantage will achieve above-average performance. So in this case, having a competitive advantage is sufficient but not necessary condition for the achievement of above-average performance (Powell, 2011). Therefore, sustainable marketing performance is inevitable for the sustainability of competitive advantage and vice versa.
Following this same science of sustainability logic, it implies that, possessing a competitive advantage is related to achieving above-average (marketing) performance (Talaja & Ercegovic, 2013). This helps to analyze the relationship between competitive advantage and marketing performance; especially how one enhances the sustainability of the other, given the industry characteristics (fragmented industry) in which the SMEs operate. The study adopted this approach, and thus identified, studied and specified the variables of competitive advantage, and how it (competitive advantage), can sustain marketing performance and vice vesrsa. This is the gap this research is motivated to close in marketing, business, management and economics literature.
1.3 OBJECTIVES OF THE STUDY
The broad objective of the study was to determine the effect of competitive strategies on the marketing performance of selected Small and Medium Scale Enterprises (SMEs) in Abia and Imo States, Nigeria. The specific objectives were to:
i) analyze the effect of low cost strategy on cost advantage of the selected SMEs in the study area;
ii) ascertain the effect of market focus strategy on sales volume of the selected SMEs in the study area;
iii) determine the effect of differentiation strategy on customer patronage of the selected SMEs in the study area;
iv) evaluate the effect of strategic alliance strategy on customer loyalty of the selected SMEs in the study area; and
v) ascertain the effect of combination strategy on the market share of the selected SMEs in the study area.
1.4 RESEARCH QUESTIONS
The following research questions were designed to guide the study. They are:
i) How does low cost strategy affect the cost advantage of the selected SMEs in the study area?
ii) What is the effect of market focus on sales volume of the selected SMEs in the study area?
iii) What is the effect of differentiation strategy on the customer patronage of the selected SMEs in the study area?
iv) How does strategic alliance strategy affect customer loyalty of the selected SMEs in the study area?
v) How do combination competitive strategies affect the market share of the selected SMEs in the study area?
1.5 RESEARCH HYPOTHESES
The following five (5) null hypotheses were formulated to guide the study.
H01: Low cost strategies have no significant effect on the cost advantage of the selected SMEs in the study area.
H02: Market focus strategy has no significant effect on the sales volume of the selected SMEs in the study area.
H03: Differentiation strategy has no significant effect on customer patronage of the selected SMEs in the study area.
H04: Strategic Alliance strategy has no significant effect on the customer loyalty of the selected SMEs in the study area.
H05: Combination strategies have no significant effect on the market share of the selected SMEs in the study area.
1.6 SIGNIFICANCE OF THE STUDY
The outcome and recommendation this study will be of immense benefits to the customers, the SMEs managers, the government, researchers, students, teachers etc. Firstly, the findings of this study will help SMEs managers to acquire the requisite knowledge for relative competitive strategies for growth and survival in the contemporary global competitive business environment. This will be in tandem with Porter’s Theory on competitive strategies and competitive advantage. Thus, the players in the SMEs sector of the Nigerian economy will be informed by the findings in the study of the precarious nature of the diverse industries and as such help them identify the need to strategize their operations to avoid other larger firms overtaking and superseding them.
The customers of these firms will enjoy the benefits of purchasing and using quality goods and services; as competition engenders quality output of firms operating in the industry. This will come from consumer surpluses that will result from value creation and value capturing of the participating firms.
The study will also benefit policy makers especially in guiding them for designing economic policies and strategies in ways that will foster competitive advantage, domestically and internationally. Hence, the study will help the government formulate policies that will assist other industries succeed in a similar fashion in order to achieve improved economic development.
Researchers will see the study as source of materials in their research, especially the ones related to the topic under study. Students, teachers and others in the academics will see this study as supplementary to their classroom curriculum. This will therefore help in their teaching and learning of competitive strategies, marketing performance and competitive advantage.
1.7 SCOPE OF THE STUDY
The study focused on selected SMEs in Abia and Imo States, Nigeria. The SMEs selected include the ones in table water, food and beverages enterprises, hotels and eateries, super markets, bakery and confectioneries. The geographic area to be covered was Imo State and Abia States of the South-East of Nigeria geopolitical zone. These sates were chosen because they have registered SMEs with relevant characteristics that generated data for the study. The competitive strategies studied include Porter’s generic strategies namely cost leadership, market focus, differentiation, strategic alliance, and combination or matrix strategies. However, the indicators of marketing performance was made up of cost advantage, customer patronage, sales volume, customer loyalty and market share.
1.8 OPERATIONAL DEFINITION OF TERMS
The major concepts that make up the study were defined herein as follows:
Competitive Strategy: Competitive Strategies consist of all moves and approaches a firm has and is taking to attract buyers, withstand pressures and improve its market position.
Cost Leadership Strategy: This is the strategy that focuses on gaining competitive advantage by having the lowest costs and operating expenses in the industry.
Differentiation Strategy: This is the strategy adopted where a firm focuses its efforts on providing a unique product or service to attract preference and loyalty from the customers.
Market Focus Strategy: This is also called Nicher Strategy. This strategy concentrates on a narrow segment of a total market either by geographical coverage or customer group. And within that segment, adopts cost leadership and differentiation to achieve competitive advantage.
Strategic Alliance: This is the strategy that adopts co-operation instead of competition by the participating firms through resource-sharing and learning; thereby achieve competitive advantage. A good example is collusion, joint venture etc.
Marketing Performance: This is the capacity of an enterprise to achieve increase in sales volume, customer patronage, market share and profitability.
Competitive Advantage: This is the capacity of a business enterprise to deliver superior value more than her competitors in a target market. The advantage may come from core competencies, capabilities, innovation, technology and other relative strengths available to the enterprise.
Combination Strategy: This is the matrix combination of the diverse competitive strategies to gain competitive advantage.
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