A Market Study on Perception of Online Marketing Adoption by Small and Medium Enterprises (SMEs) in Coimbatore City

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1 A Market Study on Perception of Online Marketing Adoption by Small and Medium Enterprises (SMEs) in Coimbatore City Rengasamy Natarajan Balamurugan PSG Institute of Management, PSG College of Technology Coimbatore, India Mahendran Sathish PSG Institute of Management, PSG College of Technology Coimbatore, India Dhanraj Jublee Sardar Vallabhbhai Patel International School of Textiles & Management Coimbatore, India Royalu Sivasubramanian Sathyanarayanan PSG Institute of Management, PSG College of Technology Coimbatore, India Abstract Online marketing has become a popular marketing tool in the modern world. A number of organizations from small to large size firms have implemented or are about to implement online marketing to attract and retain their customers in the competitive business environment. The purpose of the study is to explore the perception of online marketing adoption by Small and Medium Enterprises (SMEs) in Coimbatore and also to identify benefits, barriers, importance and effectiveness of online marketing among SMEs. Data for the study were collected through survey method from 80 SMEs using structured questionnaires to examine their perception of online marketing adoption. The study was limited to a small sample with fixed geographic location, which is within Coimbatore. The study reveals that most SMEs have not implemented online marketing due to several factors such as lack of technology awareness, qualified staff, limited support online activities, limited financial resources, and low computer literacy. Those SMEs who have adopted online marketing experienced benefits in terms of reduced cost, increased customer awareness, increased sales, global reach and so on. Furthermore, the study also suggested that SMEs can adopt online marketing by creating their own website, listing themselves in online directory and online trade portals with reduced cost and also government support initiatives to SMEs by creating awareness campaign. It also encourages entrepreneurs to conduct training for SMEs. Keywords: Online Marketing, Small and Medium Enterprises, Awareness and Adoption of Online Marketing TMC Academic Journal, 2014, 8(2):

2 INTRODUCTION Marketing is an important aspect as it is the heart of business success and it has various effective marketing tools (Porter, 2001). Traditional way of marketing has been in existence for many years and it has changed with the use of the Internet to facilitate innovative ways of doing business that impact marketing. The Internet and its allied digital marketing tools are fast growing in existing Business to Business media. A recent Business to Business study (Globalspec, 2012, Trends in Industrial Marketing) identified that a decent number of technical and industrial customers are using the internet as a main source for generating trade and obtaining product information. As a result, Business to Business advertisers are looking for various ways to exploit the digital channels and connect with customers. Large companies have been using online marketing techniques for many years since the birth of the Internet. In recent years, SMEs have also started adopting online marketing techniques to promote their business as well. A recent study by Google India (2012) showed that in India over 40% of SMEs used internet for advertising and over 58% of SMEs used their website to generate direct business leads. It was also found that SMEs who used online medium is more cost effective than traditional marketing. Hence the Internet is one of the fastest growing medium, SMEs would benefit by spending on online marketing compared to traditional marketing. Internet or Online Marketing Internet marketing refers as an external perspective of how internet may be used along with traditional way of media to gain and deliver services to their consumers. Another term is Electronic Marketing (McDonald & Wilson, 1999) that has broader scope as it refers to the Internet, interactive digital television and M-Marketing along with other technology approaches like database marketing and E-CRM to achieve marketing goals. Figure 1: Total websites across all domains, period from December 1995 to March Source: Web Server Survey (October 2012) TMC Academic Journal, 2014, 8(2):

3 Small and Medium Enterprises (SMEs) According to Storey (1994), there are no universally accepted definitions for small and medium enterprises (SMEs). Firms are classified as SMEs based on capital investment, sales and employment. Still others are based on the number of employees, amount of companies turn-over and profit margin. Different nations use different parameters like turnover ratio, nature of business, number of employers and capital investment. But in India, SME s defined based on plant & machinery investment. According to EISBC (European Indian Small Business Council), the definitions of SMEs are: Small enterprises where investment in plant and machinery above Rs. 25 Lakhs up to Rs. 5 Crores. Medium enterprises where investment in plant and machinery is above Rs. 5 Crores and up to Rs. 10 Crores SMEs in Coimbatore Coimbatore which is known as Textile City consists of more than 60,000 SMEs form the industrial tributaries to the vast river of industrial production in Coimbatore. Although the city has diverse industries, a large number of smaller companies remain unaccounted, as they are not registered with any of the government or commercial bodies. "SMEs employ some 8 million people and have an aggregate monthly turnover of about Rs.2,000 Crores, amounting to Rs.24,000 Crores annually," according to Coimbatore District Small Industries Association (CODISSIA). The city has a legacy of rich industrial contribution. The main industry sector in Coimbatore is textile, pump apart from manufacturing, chemical, automotive sectors as well. OBJECTIVES OF THE STUDY To compare and identify the types of advertising methods used and the effectiveness of online marketing over traditional marketing. To identify the benefits of online marketing. To understand the importance and reasons for adopting Internet marketing. To identify the barriers in adopting online marketing. LITERATURE REVIEW Gilmore et al. (2007) analyzed the usage of internet and electronic marketing in the year 2000 and 2004 among SMEs. The main objective of the study was to understand the changes during the four-year period and measure the usage level of electronic marketing activities. It brought a negative opinion of using the internet in terms of the design and implementation as the SMEs employees have restricted knowledge. Chaggey et al. (2009) suggested that when building websites, firms must have proper software protection from viruses and hackers. Gilmore et al. (2007) suggested that electronic marketing gives advantages to companies and complex process on making the company visible and recognizable. TMC Academic Journal, 2014, 8(2):

4 Japhet Eka et al. (2009) identified the advantages and opportunities of using the internet. He concluded that the Internet is noticed as a heavy investment among SMEs in the current market due to raising market share. Chaffey (2005) revealed that SMEs during 2004 did not consider the Internet for adopting electronic marketing activities. Strauss and Frost (2001) identified the use of electronic data and applications for planning and executing conception, distribution and pricing of ideas, goods and services to create exchanges that satisfy individual and organizational goals. Japhet and Lawrence (2010) identified that inadequacy of infrastructure, social & economic weakness and lack of ICT initiatives from governments have created a notable barrier in adopting e-commerce among developing countries. Hadjimonolis (1999) identified barriers such as internal and external barriers. The external barriers are obtaining finances, technology and others. The internal barrier is of security concern. Drew (2003) identified that infrastructure cost, adoption and access to e-marketing are declining in few of the existing SMEs in Coimbatore. Porter (2001) supported that e-marketing has resulted in standardization of products and prices due to more intensive competition. Syed et al. (2005) identified the following benefits such as better customer service, well managed inventory with reduced marketing and logistics expenses, reduced cycle time, high market reach and lesser operation cost. Mehrtens et al. (2001) identified that three drivers of SMEs decisions to invest in e- business include: Perceived benefits, Organisational readiness and External pressures. Chaffey (2007) noted that e-marketing has activities like Online Advertising, Search Engine Marketing, Sponsorship and Online Public Relations. The author also suggested that electronic marketing activities have become important tool for online trade. According to the survey conducted by Internet and Mobile Association of India (IAMAI) in 2011, it highlighted A Survey on ICT adoption among MSMEs in India with a special focus on online B2B marketplaces. RESEARCH METHODOLOGY Research Design The objective of the study was to identify the perception of online marketing adoption by SMEs in Coimbatore. Exploratory and descriptive methods were used in this study. Structured questionnaire was the main data collection instrument. Questionnaire questions were formulated based on literature and objectives of the study. Data were collected through the structured questionnaire. Target population & sample SMEs located in Coimbatore were selected for the research, which includes SIDCO as well. In total 100 samples were collected, of which 80 were taken for the study. TMC Academic Journal, 2014, 8(2):

5 Sampling design The study adopts a random sampling method for sample selection. The data were collected from Marketing Managers and Managing Directors of SMEs. The respondents were Marketing Managers and Managing Directors of the companies. Tools used for primary research A total of 100 questionnaires were used to collect data and 80 completed questionnaires were used for the present study. The questionnaire included the use of Open-ended questions, Multiple Options questions and Likert Scale. Statistical analysis The collected data was subsequently analysed using SPSS tool. Frequency Analysis is used to identify the frequency of respondents for each parameter chosen for analysis. Percentage Analysis is used to identify the percentage of respondents for each parameter chosen for analysis. Descriptive statistics is used to find the central tendency of each factor listed in Likert Scale. ANALYSIS AND INTERPRETATION Table 1: Types of advertisement engaged now and its effectiveness The respondents were asked to provide the type of advertisements engaged at the moment by using 5 points Likert Scale. Ad type- Newspaper Ad type- Trade shows Ad type- Sponsorship Ad Type- Magazines Ad Type- Banners /Posters Ad Type- Television /Radio Ad Type- Internet Ad Type- Mobile Ad Type- Seminar N Valid None Mean Minimum Maximum Newspaper was found to be a Very Effective method of advertising with 1.46 as mean score, Trade Shows are Effective with a mean of 1.90, Sponsorships are Neutral with a mean of 2.80, Magazines with a mean of 1.58 shows that SMEs find it as an Effective method of advertising, Banners/Posters with a mean of 3.06 shows that SMEs are Neutral in their opinion, Television/Radio with a mean of 3.67 shows that SMEs find it as an Ineffective method of advertising, Internet with a mean of 1.60 shows that SMEs find it as an Effective method of advertising, Mobile with a mean of 2.80 shows that SMEs are Neutral in their opinion and Seminars with a mean of 2.80 shows that SMEs are Neutral in their opinion. TMC Academic Journal, 2014, 8(2):

6 Hence, this analysis shows that Newspaper is found to be the most effective and the Internet, tradeshows, magazine are found to be effective. Methods of Online marketing engaged in now The respondents were asked the various online marketing methods used by them. On the basis of multiple options, respondents were requested to select the online marketing methods used in their company. Table 2: Methods used in online marketing Online marketing methods used now Percentage Search engine optimization (SEO) 16.30% Website 22.50% % Online trade portals 46.30% Social media 3.80% Articles 1.30% Blogs 1.30% Video 1.30% E catalogue& documents 13.80% Directory listings 46.30% Banner ads 17.50% Never engaged in internet marketing now 52.80% Figure 2: Methods used in online marketing TMC Academic Journal, 2014, 8(2):

7 The data revealed that nearly 53% of SMEs are not engaging in online marketing and only 47% of SMEs are using online marketing. The respondents were allowed to select more than one option of their online marketing tool. About 46% of company use online trade portals and directory listings to promote their business. 23% uses Website and E- mail for online marketing. To support the website, Search engine optimization (SEO) has been used by 16% of companies. Also, 16% of companies use banner ads to promote their business. Around 13% of companies provide E-catalogue and documents to customers for product and company related information. Lastly, a negligible amount of companies use Video, Articles, Blogs and Social media. Effective online marketing methods The respondents who use online marketing were asked to select the effective online methods which they feel are appropriate. Table 3: Effectiveness of online marketing methods Effective Online marketing methods Percentage Search engine optimization (SEO) 15.00% Website 18.80% 8.80% Online trade portals 40.00% Social media 2.50% Articles 1.30% Blogs 1.30% Video 0.00% E catalogue& documents 0.00% Directory listings 38.80% Banner ads 6.30% Never engaged in internet marketing 52.80% TMC Academic Journal, 2014, 8(2):

8 Figure 3: Effectiveness of online marketing methods This study reveals that 40% of companies felt online trade portals such as India mart; Alibaba, etc. have proven to be effective. The second most effective online method is directory listing of their company online, around 38% of companies have a positive mindset towards online marketing method. Other few effective online methods being 18% of companies said Website, 15% opted for SEO to list their website in top searches and 8% for . Table 4: Benefits of online marketing over traditional marketing Increased customer awareness Benefits of online marketing over traditional marketing Increase reach Increased new sales Increased customer retention Ease of use Better & fast communi cation Increased Profits Capture new market Increase market share N Valid None Mean Minimum Maximum From the study, it revealed that Online Marketing has benefits than traditional marketing in terms of increased new sales, capturing new market, increased market share, increased customer awareness, increased reach of customers, good communication, and increased profit. TMC Academic Journal, 2014, 8(2):

9 Table 5: Importance and reasons for adopting online marketing Competitive pressure Importance and reasons for adopting online marketing Fear of losing market share Customer utilize tech Compete with large firm Cost effective compared to traditional Increase global reach Enhance company image Increase sales N Valid None Mean Minimum Maximum The various reasons and importance for adopting online marketing is the confidence to compete with large firms, enhancing company image to a high level, increased sales, utilization of technology by customers (such as s, Video Conferencing, Tracking, etc.), cost effectiveness, and increased global reach. Table 6: Benefits of adopting online marketing: A view from the SMEs. On the perceptions of the benefits obtained, respondents were requested to select the listed factors. Benefits of online marketing Percentage Penetration into new market 62.50% Improved customer service 23.80% Exploitation of network opportunities 10.00% Reduced cost 31.30% Provide competitive advantage Provide competitive advantage 28.80% Increased customer awareness 47.50% Increased sales 46.30% None 45.00% TMC Academic Journal, 2014, 8(2):

10 Figure 4: Benefits of online marketing From the above bar chart, it is clear that most of the companies, around 62%, have benefited by penetrating into new markets. Increased sales and increased customer awareness were the second most benefits obtained by online marketing with 47% (approx) by the firms. Furthermore, 31% of companies have said that it reduced marketing cost and 28% said it provided competitive advantage. Few of the other benefits cited by SMEs were exploitation of network opportunities and improved customer services. Table 7: Barriers in adopting online marketing On the perceptions of the barriers inherent in the implementation of various e-marketing strategies, respondents were requested to select factors of e-marketing adoption from the listed. Barriers in adopting online marketing Percentage Lack of awareness of technology 18.00% Low computer literacy 28.00% Lack of qualified staff for online activity 28.00% Limited financial resources 37.50% Complexity 31.60% High cost for development of internet connectivity 6.30% Inadequate communication infrastructure 5.00% Disclosing company information 3.80% Not applicable 52.00% TMC Academic Journal, 2014, 8(2):

11 Figure 5: Barriers in adopting online marketing From the above table, the most critical challenge faced by SMEs hindering the adoption of online marketing were scarcity of financial resources (32%), 31% had perceived complexity and 28% due to lack of qualified staff, contributing to the barriers for adoption of online marketing activity. Furthermore 28% of companies have said that low computer literacy and 18% indicated that lack of awareness of technology has also been highlighted as a major factor in the adoption process. Table 8: Planning for online marketing in the future Planning for online marketing in the future Frequency Percent Valid Percent Cumulative Percent Valid Yes No Don t know Total TMC Academic Journal, 2014, 8(2):

12 Figure 6: Planning for online marketing in the future From the above chart, it is clear that 51% of companies are willing to adopt online marketing activities in the future and about 42% respondents were in dilemma but there are high chances for them to adopt online marketing in the future. Only 5% of respondents were not going for online marketing as their firms are small size and it may be unnecessary. So it is a good opportunity for those who are in IT, ITES and Training Providers to concentrate in a new business area. FINDINGS From the study, it is evident that only 47% of SMEs are currently involved in online marketing and the rest 53% are not involved in online marketing as of now. 32% of companies have allocated around 1 to 5 lakhs per year for overall marketing budget. But most of the SMEs do not allocate any marketing budget for a year. Based on the study, 75% of companies do not allocate any separate budget for online marketing. According to SMEs, Newspaper is found to be the most effective method of advertisement. Other effective methods of advertisements according to SMEs are Tradeshows, Magazines and Internet marketing. Most common method of online marketing adopted by SMEs are Online Trade Portals and Directory Listings. The second most common method used are Websites, and SEO (Search engine optimization). Most of the SMEs who have adopted online marketing do not measure the performance of online marketing. Few of the companies who use online marketing measure through profit and difference in sales/revenue. TMC Academic Journal, 2014, 8(2):

13 Reasons cited for SMEs in the adoption of online marketing include the need to compete with larger firms, increase sales, enhance firms image, seek global reach for customers and its cost effectiveness compared to traditional. Main benefits which SMEs found by adopting online marketing are: a. Penetration into new markets b. Increased sales c. Increased customer awareness d. Reduced cost e. Having competitive advantage The SMEs which have not adopted online marketing were mainly due to limited financial resources and lack of qualified staff to support online activities. Few SMEs also said that it is because of lack of awareness of technology and low computer literacy. Most of the SMEs around 51% of companies are willing to adopt online marketing. Around 53% of SMEs who have not implemented online marketing said that they have not implemented online marketing due to the factors such as lack of qualified staff to support the online marketing activity, limited financial resources, lack of awareness of technology and low computer literacy SMEs proprietors shared that some SMEs are not willing to adopt online marketing because, factors like cost, awareness among suppliers and customers, touch feel approach among customers, trust, payment issues. SUGGESTIONS Internet marketing is extremely low cost and also an efficient tool for reaching out to more customers. Creating own websites is the best solution for the companies to sustain in the market. Listing in directories and portal will cost few Lakhs in every year. Hence, the Internet would definitely be more economical than media like Newspaper, Tradeshows etc. which would create more awareness. Also, SMEs are unaware of the potential benefits of the Internet. As such, the government can create awareness campaign among SMEs and provide incentives to support the SMEs. Few SMEs started their marketing activities through online because they felt that online marketing provides a lot of business opportunities. IT, ITES companies need to understand the purpose and deliver the service instead of pushing the software. Ex: Google India, for example offers free website with personalised domain and hosting for SMEs in India. The SMEs can make use of these opportunities to use the internet platform effectively to benefit their business. CONCLUSION The purpose of the study was mainly to gather perception of adopting online marketing by SMEs and various factors like benefits, barriers, necessity of online marketing were analysed. The studies showed that most of the SMEs still have not adopted online marketing and are willing to implement it in the future. To compete with larger firms may TMC Academic Journal, 2014, 8(2):

14 not be right reason to go for online marketing. SMEs need to understand the purpose of the online marketing, they can use it for receiving feedback, payment, product comparability, price comparison and creating awareness. Most of the SMEs prefer online marketing because of cost factor only, they have to understand the business model which they operate before adopting online marketing. Hence, the study reveals that the potential of the Internet to be exploited is enormous and the benefit to be gained is only limited by the imagination of the business users. Government and SME organisations can educate and spread the awareness of online marketing and provide incentives to support SMEs. TMC Academic Journal, 2014, 8(2):

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