An investigation of marketing practice by firm size

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE NICOLE E. COVIELLO University of Calgary, Calgary, Alberta, Canada

RODERICK J. BRODIE University of Auckland, Aotearoa, Auckland, New Zealand

HUGH J. MUNRO Wilfrid Laurier University, Waterloo, Ontario, Canada

In a review of the state of knowledge at the marketing/entrepreneurship interface, Muzyka and Hills (1993) posed the following question: “Just how well do existing marketing models and the traditional marketing paradigm fit the environment, behavior, and processes found in entrepreneurial organizations?” This is a particularly important issue to consider given that small firm practices have historically been assessed in the context of existing marketing models: models based on large firm practices. Perhaps not surprisingly, small firm marketing practices have generally been criticized as non-traditional, informal, short-term, and non-strategic. However, given that the marketing discipline is undergoing a transformation with new paradigms of thought emerging (for example, relationship marketing), is it now appropriate to assess small firm practices in the context of a broader, more contemporary perspective. This research examines the relevance of the traditional marketing paradigm to smaller firms, in terms of market planning, the type of marketing practiced, and the use of performance measures. Smaller firm practices are compared with those of larger firms in the context of a framework that integrates both the transactional and relational schools of marketing thought. Thus, both traditional and emerging paradigms are considered. Three hypotheses are examined using a self-administered survey designed to collect quantitative and qualitative data pertaining to the firm’s various marketing practices and processes. The sample consists of

EXECUTIVE SUMMARY

Address correspondence to Nicole E. Coviello, Faculty of Management, University of Calgary, 2500 University Dr. NW, Calgary, AB, Canada, (403) 220-3813, Fax: (403) 282-0095, E-mail: [email protected] The authors gratefully acknowledge the comments and suggestions of the editor, S. Venkataraman, and one anonymous reviewer of the Journal of Business Venturing. Journal of Business Venturing 15, 523–545  2000 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

0883-9026/00/$–see front matter PII S0883-9026(98)00035-4

524

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

302 firms reflecting two similar sub-samples of managers attending part-time executive programs in New Zealand (n ⫽ 192), and Canada (n ⫽ 110). These managers represent firms of varying size, age, growth rate, use of technology, and industry sector. Analysis was controlled for each of these variables, with firm size being the primary unit of analysis. The results show that in certain areas, marketing practices differ between smaller and larger firms. For example, size-related differences are reflected in the approach to market planning, where smaller firms are found to be more informal than larger firms. Smaller firms also use fewer ways to measure market performance than larger firms. At the same time, the findings also indicate that small firm marketing practices are similar to those of larger firms in many ways, with both transactional and relational marketing relevant across firm size. For example, similarities can be identified in the intent of marketing decisions, the expected duration of customer relationships, the nature of customer contact, and where firms invest marketing resources. The results show that both types of firms practice aspects of the traditional transaction view of marketing, and also emphasize the development and management of personal relationships with individual customers, and efforts to position the firm in a net of various market relationships. These latter practices reflect the more contemporary relational marketing paradigm. Overall, this study enriches our understanding of marketing practices by viewing them in the context of a contemporary framework. By taking a more modern and integrated view of marketing, the study also provides greater realism to our appreciation of issues at the marketing/entrepreneurship interface. On one hand, it confirms that the traditional models related to market planning and performance measurement are not fully evidenced in the practices of smaller firms. These results clearly support the mainstream entrepreneurship literature. On the other hand, the study also shows aspects of the traditional paradigm do fit the environment, behaviors, and processes found in entrepreneurial organizations. More importantly however, the findings show that to understand and assess small firm practices, we must move beyond the traditional marketing paradigm to appreciate a broader, more modern perspective. In doing so, we find evidence that the types of marketing practiced by smaller and larger firms are not, in fact, fundamentally different. In terms of practical implications for managers of smaller firms, investment (time, personal effort, and financial resources) should be placed in both individual relationships and the development of the firm’s position in a network of firms. As the firm grows, this understanding of relational marketing will serve the firm well, given managers in larger firms report a perceived need to improve their skills in this area. The traditional view of marketing is also relevant to smaller firms. By learning how to competently manage the areas of product, price, promotion, and distribution in a manner appropriate to the smaller firm, the organization can develop a base on which to develop customer relationships, and also the capacity to compete as a larger organization. With regards to planning and performance measurement, a number of implications can also be drawn. For example, smaller firms are more informal than larger firms in terms of their market planning. As managers in these firms seem to want to improve their planning processes, it might be suggested that this in fact be done. However, since this study does not link planning to market performance, it is inappropriate to suggest that smaller firms should become more formal, as their informality may well be an inherent characteristic of an entrepreneurial organization (and not necessarily a weakness). In terms of performance measurement, the results of the study show that smaller firms tend to rely primarily on financial indicators. Thus, managers should be aware of the risk of being myopic and seek to capitalize on their close market contact by better use of customer feedback. They might also learn from the more holistic approach taken by larger firms. Managers should, however, question the relevance of market performance measures in the context of their specific firm and it’s environment and not simply adopt formal large firm tools without due consideration.  2000 Elsevier Science Inc.

INTRODUCTION Marketing is generally considered to be fundamental to the development and performance of firms (Narver and Slater 1990; Day 1992; Jaworski and Kohli 1993). However,

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

525

small firm marketing practices are typically described as unique, and tend to be criticized as non-traditional, non-strategic, and non-comprehensive. As stated by Hisrich (1992) entrepreneurs are often poor planners and managers, and have a “limited understanding of marketing.” Such criticisms inevitably use traditional views of marketing as their reference point; views developed in the 1950s and 1960s are based on the practices of large organizations. Given that the marketing discipline is undergoing a transformation with new paradigms of thought and organizational behavior emerging (Achrol 1991; Webster 1992), we believe it is now appropriate to assess small firm marketing practices in the context of a broader, more contemporary framework. Furthermore, since larger firms are also experiencing pressure to transform their marketing activities to better reflect changing market and customer environments, we seek to better understand the current nature of marketing in larger firms. By obtaining a better understanding of both small and large firm practices in the context of a more modern view of marketing, we will be better able to assess small firm marketing and identify relevant issues for investigation at the marketing/entrepreneurship interface. We also believe it important to identify and understand both differences and similarities across these two types of organizations, in order to better position marketing education and practice. In this research, we address three specific questions. First, does the nature of market planning differ between smaller and larger firms? Second, is the type of marketing practiced by smaller firms different from that of larger firms? Third, are smaller firms different from larger firms in their use of market performance measures? We consider these three areas to be critical, given that market planning, the practice of various marketing activities, and the measurement of market performance are generally held to be key responsibilities of the marketing function. The paper proceeds with an introduction to the literature supporting this study. This review highlights the relationship between the fields of marketing and entrepreneurship, research examining the influence of firm size on marketing practice, and the relevance of the traditional marketing paradigm to smaller firms. Three hypotheses are also developed for examination. We then explain the research method and present the results and implications.

THEORY AND HYPOTHESES Interest in the marketing/entrepreneurship interface has grown in recent years. Researchers in each discipline have identified common threads between the two fields, with Hisrich (1992) noting that both entrepreneurship and marketing have a customer focus, as well as a behavioral orientation that is involved with making “the deal” and developing distinctive competencies. He also argues that entrepreneurship and marketing are both affected by environmental turbulence and characterized by risk-taking and change. This view is supported by Hills and LaForge (1992) and Carson et al. (1995) who argue that marketing should be treated as a major domain within the entrepreneurship field as the concepts of innovation, creativity, idea generation, and opportunity identification are intrinsic to the philosophies of both areas. Beyond the similarities between entrepreneurship and marketing, it is generally accepted that the characteristics of the small firm will influence marketing practice. For example, Schollhammer and Kuriloff (1979) explain that small firms have limited resources and are characterized by independence, a distinctive managerial style, owner-

526

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

ship, and scale/scope of operations. Carrier (1994) and Carson et al. (1995) also describe the structures in smaller firms as less rigid, sophisticated, and complex than in larger firms, with small firms characterized by their entrepreneur’s involvement and influence. As a result, marketing practices are generally argued to be different from those found in larger firms. This argument is, in fact, supported by a body of literature focused on examining the influence of firm size on various marketing activities (Andrus and Norvell 1990; Sriram and Sapienza 1991; Brush 1992; Mohan-Neill 1993, 1995; Shama 1993; Shipley and Jobber 1994). Although these studies investigate a variety of topics ranging from differences in environmental scanning activities (Brush 1992; Mohan-Neill 1995) to differences in sales management practices (Shipley and Jobber 1994), two common patterns can be identified. First, each study concludes that firm size is a significant factor influencing marketing processes and practices, with small firm orientations, perceptions, or activities differing from those found in larger firms. Second, these conclusions are drawn from studies which have consistently used the traditional view of marketing as their primary conceptual framework, where marketing is defined as: “. . . the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create and satisfy individual and organizational objectives.” (AMA 1985) This traditional view of marketing is sometimes referred to as transaction marketing or marketing mix management. This is due to the focus on managing the marketing mix decision variables of Product, Price, Promotion, and Place (distribution) in order to generate a transaction (that is, attract customers). The emphasis on the traditional view of marketing is perhaps to be expected given its widespread acceptance in marketing education. A similar pattern is, in fact, identified by Romano and Ratnatunga (1995) in their review of entrepreneurship research. For example, they conclude that most studies examine the application of the marketing mix, or managing the mix, in relation to the growth or performance of smaller firms. What is important to recognize from the emphasis on the traditional view is that researchers seeking to understand small firm marketing have done so in the context of a paradigm that began to evolve in the 1950’s: a paradigm with its roots in the practices of large consumer packaged good firms serving mass North American markets. Therefore, it is perhaps not surprising that the entrepreneurship literature criticizes small firm marketing, with Peterson (1989) concluding that smaller, entrepreneurial firms have “failed to embrace the marketing concept.” Similarly, Carson and McCartan-Quinn (1995) suggest: “. . . the inherent predisposition of small firms to be at best, practicing inadequately formalized [non-conventional] marketing, and at worst, non-marketing, is one of a number of known small firm characteristics.” Beyond these general criticisms, a body of research concludes small firm activities are informal (Kinsey 1987; Brush 1992; Pearson and Ellram 1995; Golhar and Deshpande 1997). Weinrauch et al. (1991) also argue that small firms lack a strategic orientation. These patterns have been found across a spectrum of small firm activities including supplier selection and human resource management practices, and this gives rise to the first research question: does the nature of market planning differ between smaller and larger firms? According to the traditional view, marketing is described as a coordinated, inte-

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

527

grated, and formal process of managing the marketing mix in relation to a clear set of measurable objectives. Furthermore, this process is captured in a formal document or plan. As theorized by Carson and McCartan-Quinn (1995) however, the formal approach to marketing activities (as prescribed by the traditional marketing paradigm) is not practiced by small firms. Rather, their marketing activities are driven more by intuition rather than textbook theory. If this logic is followed, small firm market planning is unlikely to involve a formal process resulting in the development of a strategic marketing plan. Similarly, a variety of studies conclude that small firms have a shortterm orientation (Meziou 1991; Brush 1992; Carrier 1994). Thus, long-term perspective to market planning is perhaps unlikely in the smaller firm. This leads to the first hypothesis: H1: The smaller firm’s approach to market planning differs from that of larger firms in that: a) formal marketing plans are less common in smaller firms, and b) market planning is more short-term in smaller firms.

Given the above expectations regarding market planning, it is logical to assume that the execution of marketing practices in smaller firms will also differ from that in larger firms. However, in testing this assumption, we are cautioned from our earlier discussion to incorporate a more comprehensive view of what marketing practice entails in today’s marketplace. What follows then is a summary of topical debate in the marketing discipline, a conceptual framework of contemporary marketing practice, and a hypothesis regarding how smaller firms differ from larger firms in the context of this framework. As previously discussed, the traditional marketing paradigm was established over three decades ago. Today however, major changes are occurring within both the marketing environment and business organizations. Markets are more global and technologically sophisticated, competition is more intense, and consumers are more demanding. As such, information, communication, and service issues are becoming increasingly important to business. Related to this, new types of business organizations are emerging, based on partnerships, alliances, and networks. Accompanying this environmental and structural change is a shift in the way marketing is being organized and practiced, and this is in turn challenging the traditional views of the discipline. A new paradigm of thought has emerged (Kotler 1992; Webster 1992) where it is argued that it is more important to focus on the development and management of “relationships.” Such relationships may extend beyond customers to include suppliers, channel intermediaries, and other market contacts (Moller 1992; Webster 1992; Gronroos 1994, 1998). This paradigm is generally referred to as Relationship Marketing, and one commonly used definition is that offered by Gronroos (1990): “Marketing is the process of identifying, establishing, maintaining, and enhancing (and when necessary, also terminating) relationships with customers and other stakeholders, at a profit, so that the objectives of all parties involved are met. This is done by a mutual exchange and fulfillment of promises.” According to Sheth et al. (1988), the interest in and emphasis on relationships is likely to redefine the domain of marketing. Thus, given the emergence of the relational paradigm, the concern raised by Muzyka and Hills (1993) becomes relevant: “Just how well do existing marketing models and the traditional marketing paradigm fit the environment, behavior, and processes found in entrepreneurial organizations?” The second research question, therefore, asks how the type of marketing practiced

528

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

by smaller firms compares to that of larger firms when examined in the context of a modern (and less traditional) view of marketing? To answer this question, it is important to understand marketing in the context of both the traditional and non-traditional marketing paradigms. A number of comparative discussions can be found (Sheth et al. 1988; Christopher et al. 1991; Gronroos 1994). For example, Christopher, Payne, and Ballantyne (1991) explain that transaction marketing is focused on a single sale in the shortterm. It is oriented towards product features with low service emphasis and involves moderate customer contact and limited customer commitment. In contrast, relationship marketing is focused on customer retention over the longer-term and emphasizes product benefits with high service, high customer contact, and high customer commitment. More recently, Nevin (1995) and Coviello, Brodie, and Munro (1997) argue that marketing is more complex than a simple dichotomy. As summarized in Tables 1 and 2, Coviello et al. (1997) use a series of dimensions to distinguish between four types of marketing practice: Transaction, Database, Interaction, and Network Marketing.1 In this framework, Transaction Marketing involves a firm attracting and satisfying potential buyers by managing the elements in the marketing mix. This approach involves creating discrete economic transactions that are generally treated in isolation, at armslength, and in the context of a formal, impersonal process. Following from this, buyers in the market are passive in the communication relationship. The seller actively manages the exchange, and manages communication “to” buyers in the mass market. At a managerial level, managers focus on marketing a product/brand to an identified group of customers. Marketing activities are usually relegated to functional marketing areas, and managers focus on developing internal capabilities related to the marketing mix. Coordination with other functions in the firm is limited, and the planning horizon for this type of marketing is generally short-term. Database Marketing is a tool or technique used by businesses to develop and manage long-term relationships between the company and its targeted customers. In this type of marketing, the focus is still on the market transaction, but now involves both economic and information exchange. The marketer relies on information technology (possibly in the form of a database or the Internet) to form a type of relationship, thus allowing firms to compete in a manner different from mass marketing. More specifically, the intent is to retain customers over time. Communication patterns are generally driven and managed by the seller and are, therefore, asymmetrical (similar to Transaction Marketing). Marketing is still “to” the customer, rather than “with” the customer. Relationships per se are not close and are facilitated and personalized through the use of technology. They do not generally involve on-going interpersonal communication and interaction between individuals, and exchange is discrete, albeit over time. Managerial investment for Database Marketing is in the tool/technique and in supporting technology and information. That is, it is an internal and controllable marketing asset to be managed by specialist marketers. In this type of marketing, the managerial focus widens to include both the product/brand and specifically targeted customers. Although Database Marketing involves a certain form of relationship that is personalized yet distant, Interaction Marketing implies face-to-face interaction within relationships. Marketing occurs at the individual level based on social processes and personal interactions. Relationships are established between individuals in the context of 1

See Coviello et al. (1997) for details on the development of this classification scheme.

Customer Attraction (to satisfy the customer at a profit)

Product or Brand

Internal Marketing Assets (focusing on product/ service, price, distribution, promotion capabilities) Functional Marketers (eg Sales Manager, Product Development Manager) Short-term

Managerial Intent

Managerial Focus

Managerial Investment

Managerial Level

Time Frame

Transactional Perspective Type: Transaction Marketing

Longer-term

Specialist Marketers (eg Customer Service Manager, Loyalty Manager)

Internal Marketing Assets (emphasizing communication, information, and technology capabilities)

Product/Brand and Customers (in a targeted market)

Customer Retention (to satisfy the customer, increase profit, and attain other objectives such as increased loyalty, decreased customer risk, etc)

Type: Database Marketing

TABLE 1 Types of Marketing Classified by Managerial Dimensions

Short or Long-term

Managers from across functions and levels in the firm

External Market Assets (focusing on establishing and developing a relationship with another individual)

Relationships Between Individuals

Interaction (to establish, develop, and facilitate a cooperative relationship for mutual benefit)

Type: Interaction Marketing

Relational Perspective

Short or Long-term

General Manager

External Market Assets (focusing on developing the firms position in a network of firms)

Connected Relationships Between Firms (in a network)

Coordination (interaction between sellers, buyers, and other parties across mutiple firms for mutual benefit, resource exchange, market access, etc)

Type: Network Marketing

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

529

Discrete (yet perhaps over time) Formal

Active Seller—Passive Buyer

Duration

Formality

Balance of Power

Arms-length, Impersonal

A Firm and Buyers in the General Market Firm ‘‘to’’ Market

Parties Involved

Communication Pattern Type of Contact

Economic Transaction

Focus (Purpose)

Transactional Perspective Type: Transaction Marketing

Formal (yet personalized via technology) Active Seller—Less Passive Buyers

Discrete and over time

Personalized (yet distant)

Information and Economic Transaction A Firm and Buyers in a Specific Target Market Firm ‘‘to’’ Individual

Type: Database Marketing

Relational Perspective Type: Interaction Marketing Interactive Relationships Between a Buyer and Seller Individual Sellers and Buyers (a dyad) Individuals ‘‘with’’ Individuals (across organizations) Fasce-to-face, Interpersonal (close, based on commitment, trust, and cooperation) Continuous (ongoing and mutually adaptive, may be short or long term) Formal and Informal (ie at both a business and social level) Seller and Buyer Mutually Active and Adaptive (interdependent and reciprocal)

TABLE 2 Types of Marketing Classified by Relational Exchange Dimensions

Continuous (stable yet dynamic, may be short or long term) Formal and Informal (ie at both a business and social level) All Firms Active and Adaptive

Firms ‘‘with’’ Firms (involving individuals) Impersonal—Interpersonal (ranging from distant to close)

Connected Relationships Between Firms Sellers, Buyers, and other Firms

Type: Network Marketing

530 N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

531

their organization and can occur in both a formal and informal manner, with the parties being mutually active and adaptive. At a managerial level, Interaction Marketing is truly “with” the customer, as both parties in the dyad invest resources to develop a mutually beneficial and interpersonal relationship. Interaction Marketing is not the responsibility of a specialist marketer per se (as in Database Marketing), nor is the practitioner necessarily in the position of seller. Rather, Interaction Marketing can involve a number of individuals across functions and levels in the firm, and may encompass both buying and selling activities. Network Marketing occurs across organizations, where firms commit resources to develop a position in a network of relationships. This is generally accomplished through business and social transactions overtime, as a result of developing and maintaining individual, interaction-based relationships. Thus, Network Marketing encompasses relationships at both the individual and firm level. The relationships are part of a larger net, and, therefore, they can range from close (interpersonal) to distant (impersonal) and have varying levels of power and dependence, as well as degrees of communication. Network Marketing may be conducted at a general management level or by ‘part-time’ marketers from other functional areas in the organization, or even outside the organization. Relationships may be with customers, distributors, suppliers, competitors, and so on. Overall, the value of the Coviello et al. (1997) framework is that it extends our view of marketing to a broader level. In doing so, it captures both the transactional (Transaction Marketing) and relational perspectives (Database, Interaction, and Network Marketing). Thus it encompasses both traditional and non-traditional paradigms of marketing thought and provides a more relevant base from which to compare small and large firm practices. That is, given that the view of marketing historically used to assess small firm practices is both limited and dated, it is important to compare small and large firm practices in a more comprehensive and modern light. Using this framework as a conceptual base, it might be suggested that the requisites for effectively carrying out the different types of marketing vary and will pose different challenges to firms of different size. For example, larger firms may be more likely to have the capacity to practice Transaction Marketing given their scope of operations and markets served. They may also be more likely to engage in Database Marketing given their relative resource base and infrastructure, both of which are likely to be necessary to support the information and technology requirements of this type of marketing. In contrast, smaller firms might be expected to be more relational in their approach to the market, emphasizing Interaction and Network Marketing. For example, if smaller firms are closer to their customer base (Carson et al. 1995), company personnel at all levels have the potential to be involved with customers on an individual, face-to-face level. Combined with the small firm’s resource constraints, flexibility, and opportunistic approach (Hisrich 1992), this might lead the small firm to rely on personal contact networks to develop the business and obtain information/feedback. Beyond personal contacts, small firms have also been found to make active use of inter-organizational relationships to facilitate growth (Coviello and Munro 1995). This includes outsourcing key marketing activities traditionally held within the organization (for example, customer contact, promotion, and distribution). Given these patterns, it is possible that while small firms may be product and priceoriented (Carson 1990) and use some form of the marketing mix to grow their business (Carson and McCartan-Quinn 1995), their marketing practices are likely to be driven by the set of interpersonal relationships established at an individual level. Similarly, the

532

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

owner/manager might actively seek to establish a network of relationships with other organizations to help facilitate firm growth. In comparison with larger firms, Transaction and Database Marketing might be expected to play a less significant role. Therefore, the following hypothesis is offered, framed in the classification scheme offered by Coviello et al. (1997): H2: The marketing practices of smaller firms differ from those of larger firms in that they are more likely to practice Interaction Marketing and Network Marketing.

The third and final research question is a natural extension of the two previous hypotheses, and examines whether small firms are different from larger firms in their use of performance measures. According to the traditional view of marketing, the control process can include evaluation of performance relative to annual plans, profitability analysis, efficiency analysis, and review of strategic effectiveness. In the context of measuring market performance, managers are guided to analyze their organization’s achievements relative to specific objectives. Such objectives can be wide-ranging, and might include, for example, sales growth, market share, profitability, customer satisfaction, or new product introduction. Larger firms, due to their more complex organization structure, reporting requirements, and greater visibility to a broader base of stakeholders beyond the customer (for example, shareholders, unions, government), might therefore be expected to apply a variety of performance measures across all of these areas. In contrast, small firms may be more ad hoc in their control efforts (Boag 1987) with emphasis placed on only one or two areas. For example, small firms have relatively easy access to market information through direct interface with their customers (Hisrich 1992) and generally lack the resources for more complex procedures. Thus, it might be expected that their approach to assessing market performance would rely on customer feedback (rather than the comprehensive and sophisticated set of measures that might be more appropriate to bigger, more structured organizations). This is, in fact, suggested by the findings of Meziou (1991) who concluded that small firms exhibit a strong customer focus and contact. On the other hand, Shipley and Jobber (1994) found that small firms focus on profitability as a key performance indicator. This could reflect either the inherent price/profit orientation of the entrepreneur who has a vested financial interest in the organization, or the focus of a critical stakeholder (for example, the bank or venture capitalist). Drawing from the above, both customer-based information and financial measures of performance may be most relevant to the small business manager. This is particularly so in comparison to more traditional measures such as market share, time to market, sales forces effectiveness, etc. As discussed by Carson et al. (1995): “. . . the benefits of performance assessment and comparison that [the market share] concept offers are lost [to a small firm] because its size and range of activities mean that it will have an insignificant and often immeasurable share of the market.” Beyond the choice of specific measures, Smith et al. (1988) found that entrepreneurs are less comprehensive in their general information gathering and analysis than larger firms. Similarly, Shipley and Jobber (1994) conclude that larger firms use a wider, more elaborate set of measures and criteria to evaluate sales management efforts than do small firms. Based on this literature, a third hypothesis is developed: H3: The market performance measures used by smaller firms differ from those used by larger firms in that they: a) are less comprehensive in scope and b) emphasize customer-based information and profitability measures.

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

533

TABLE 3 Key Characteristics of the Sample (%) Characteristic a. Size b. Age

c. Growth Rate (change in sales over 3 years) d. Sector

e. Use of Technology in the Firm

⬍⫽100 employees ⬎100 employees Less than 5 years 6–10 years 11–30 years ⬎30 years Decreased/No change 1–10% growth ⬎10% growth Consumer Goods Industrial Goods Services/Non-profit Other/Commodity Low Medium Advanced Very Advanced

NZ

Cdn

Total

51.3 48.7 12.6 18.8 27.7 40.8 15.0 40.6 44.4 18.8 17.3 50.8 13.1 22.9 29.7 28.6 18.8

33.0 66.9 12.7 14.5 17.3 55.5 16.7 36.7 46.7 9.1 20.0 57.3 13.6 19.1 29.1 28.2 23.6

44.9 56.1 12.6 17.3 23.9 46.2 15.6 39.3 45.1 15.3 18.3 53.1 13.3 21.5 29.5 28.5 20.5

METHOD Instrument and Sample A self-administered structured questionnaire was developed to collect quantitative data pertaining to market planning, the type of marketing practiced, and performance measurement, as well as respondent and organizational demographics. The instrument also collected qualitative data regarding the respondent’s views about marketing, industry trends, and changes made (or perceived as necessary) to their practices. This combination of quantitative and qualitative data was believed most appropriate given our need to examine a set of hypotheses and, at the same time, understand contextspecific findings. Thus, we required data that were “real and hard and deep” (Zinkhan and Hirscheim 1992). The instrument was pre-tested with ten marketing practitioners from various sectors and five marketing academics (all of whom have at least ten years of industry experience in marketing and management). Following minor modifications to structure and wording, the instrument was administered to a sample of managers representing firms of varying size, age, growth rate, technology use, and industry sector (see Table 3 for key characteristics). Respondents were middle managers in both marketing and general management positions, with the majority having been in their role for at least one year (85%). Nearly all managers (90%) were between the ages of 26 and 45, and 75% had some form of tertiary training, although not specifically in marketing. The sample consists of 302 firms reflecting two sub-samples of managers attending part-time executive courses in New Zealand (n ⫽ 192) and Canada (n ⫽ 110). The courses were taught by the authors, and completion of the instrument was a required project early in the term. This resulted in a high level of response with considerable care being given by respondents to all aspects of the study. Participants were also advised that the data generated by the research was part of an international study on marketing practice. The two sub-samples were similar along all managerial demographics and most organizational characteristics. Size and age were an exception (with Canadian firms being both larger and slightly older), however these variables were controlled for in data analysis.

534

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

Measures Three kinds of information were obtained to test the hypotheses: 1) the firm’s approach to market planning, 2) the types of marketing practiced by each firm, and 3) the market performance measures they used.

Market Planning To examine H1 (approach to market planning), information on the nature of each firm’s planning activities was collected using dichotomous “yes/no” questions. These questions related to the existence of a formal plan and the time frame of the formal plan. As such, they reflect the more traditional/textbook approach that prescribes longerterm formalized market planning. A variety of the open-ended questions (noted above) also relate to managerial planning activities, and provide further insight to this issue.

Marketing Practices To examine H2 (types of marketing practiced), a series of dimensions underlying both transactional and relational marketing were measured (see Tables 1 and 2). However, the twelve original dimensions derived by Coviello et al. (1997) were reduced to nine following additional content analysis of the literature and informal interviews with marketing practitioners. More specifically, the three original dimensions labeled “parties involved”, “communication pattern”, and “balance of power” were combined to form one dimension. This new dimension captured the nature of the communication relationship between parties in the market. For example, the relationship might involve the organization communicating with a passive mass market, or individuals at various levels in the organization personally interacting with their individual, active customers. The two original dimensions labeled “duration” and “time frame” were also combined to form one dimension reflecting the longevity of the relationship. On the survey instrument, each of the nine dimensions consisted of a set of variables designed to capture each type of marketing practice as discussed by Coviello et al. (1997). Five-point Likert-type scales anchored by “Never”(1) and “Always”(5) were used for these variables. An example of how each question was framed is as follows: “For each question, please read all parts. Please answer all parts of each question by circling the number on the 5-point scale which best corresponds to what actually happens in your organization. Where necessary, focus on your primary customers.” For example, the “Managerial Investment” dimension (see Table 1) was operationalized with the four questions shown in Table 4. Using this example, Question 6a was designed to measure the extent to which managerial investment is in the traditional marketing mix (Transaction Marketing). The other three questions capture the relational perspective, where 6b measures the extent of investment in technology to “get closer” to customers (Database Marketing), 6c measures managerial investment in personal and individual relationships (Interaction Marketing), and 6d measures investment in a firm’s network position (Network Marketing). Thus, questions 6a-6d measure the extent to which each type of marketing is practiced, in the context of one dimension (managerial investment). The instrument also included a series of open-ended questions regarding marketing practice (trends, changes, influences, etc.) which allowed for more comprehensive de-

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

535

TABLE 4 Managerial Investment Dimension 6. Our marketing resources (that is, people, time, and money) are invested in: a) product, promotion, price, and distribution activities (or some combination of these) b) technology to improve communication with our customers c) establishing and building personal relationships with individual customers d) developing our organization’s network relationships within our market(s) or wider marketing system a

Never

Always

N/Aa

1

2

3

4

5

6

1

2

3

4

5

6

1

2

3

4

5

6

1

2

3

4

5

6

Based on the pretest, the “N/A” option was included. This was coded as a missing value.

scriptions of the firm’s activities. Analysis of these questions was also expected to help understand and explain the quantitative responses. The results of the pre-test (and its resultant discussion session) suggested the instrument captured the essential aspects of marketing practice. Thus, the measures appeared to have content and face validity. Following data collection, the reliability of these measures was assessed given our intent to examine the individual variables in the context of the four types of marketing. First, a series of four scales were developed using the variables within each of the nine dimensions. Each of these scales reflected one of the four types of marketing discussed by Coviello et al. (1997). Second, coefficients were calculated for each scale using Cronbach Alpha tests, and it was decided to eliminate the variables associated with the dimension labeled “formality.”2 The final number of dimensions across the four scales was thus reduced from nine to eight, and the four scales showed ␣ values of 0.64 (Transaction Marketing), 0.66 (Database Marketing), 0.72 (Interaction Marketing), and 0.76 (Network Marketing). These levels are generally considered to be acceptable (Nunnally 1978).

Market Performance Measurement To examine H3 (performance measures), each firm’s use of various market performance measures was reported using a 5-point Likert-type scale similar to that described above. Respondents rated their firm’s actual use of competitive measures, customer-based information, financial measures, and measures for the effectiveness of marketing activities. Although neither exhaustive nor overly specific (in that detailed measures such as customer migration were not included), the four types of measures, in combination, represent key areas of market performance. They also captured both traditional and more contemporary (relational) views of performance. Aspects of the marketing practice measures and open-ended questions (noted above) relate to performance measurement, and thus provide further insight to the data.

Analysis The primary variable for hypothesis testing is firm size. Although the literature commonly notes that there is no one threshold for size (Shipley and Jobber 1994; Weinstein 2 This decision was further confirmed by the results of a Principle Components Analysis of the scales. This test revealed that the items measuring “formality” had low component scores.

536

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

1994; Ahire and Golhar 1996; Golhar and Deshpande 1997), the most common approach appears to use the firm’s number of employees. This study uses a two-level categorization: smaller firms (less than 100 employees) and larger firms (greater than 100 employees). Although this approach is not as refined as the four-level categorization of Bonaccorsi (1992), it follows most of the literature that uses a two-level comparison. The variables of firm age, sales growth rate, and industry sector were also defined in order to allow for a deeper level of analysis following Andrus and Norvell (1990), Shama (1993), and Mohan-Neill (1993, 1995). Finally, a variable measuring the firm’s use of technology was included, as it was considered this might influence a firm’s marketing practices based on Coviello et al.’s (1997) argument that Database Marketing uses technology to get closer to the customer. The data was first analyzed using regression analysis to examine the extent to which firm size was associated with firm age, growth rate, use of technology, and sector. The data was then examined to identify relationships between the various marketing activities and the primary variable of firm size. This analysis controlled for other firm characteristics. H1 was tested using chi-square analysis. To test H2 and H3, differences in the means for larger and smaller firms were examined using ANOVA. The qualitative data was content-analyzed to identify trends in the more detailed responses surrounding marketing practice.

RESULTS This section discusses the results of the study and shows that each of the three hypotheses is either fully or partially supported. Details are discussed below, however, it is important to first understand the associations between firm size and other key characteristics. Analysis indicates that size is positively associated with firm age and use of technology (p ⬍ 0.01), and negatively associated with the firm’s growth rate (p ⬍ 0.01). No association was found between firm size and industry sector. Thus, for the ANOVA tests of H2 and H3, it was decided to control for the co-variation of age, growth rate, and use of technology, but not sector. For H1, regression analysis was used to check for associations in the results of the chi-square analysis.

H1: Market Planning In terms of market planning, the overall results indicate that a reasonably high proportion of the total sample has a formal marketing plan (61.6%), however, differences emerge between smaller and larger firms (see Table 5). The chi-square analysis indicates that larger firms are more likely to have a formal plan than are smaller firms, and a plan that is characterized as medium to longer term.3 At the same time, it should be noted that, although there is a statistically significant difference reported along each of the time frames, both types of firms report that a medium-term plan is most commonly used. In relative terms, both smaller and larger firms appear to make less use of longterm plans. Based on the qualitative data, managers in smaller firms report a need to improve their planning activities and their ability to develop formal marketing plans. 3 Regression analysis was undertaken to check for any specific association caused by other firm characteristics. The analysis confirmed the initial chi-square results found in Table 5.

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

537

TABLE 5 Comparing Market Planning Approaches by Firm Size Market Planning Variable Has a formal marketing plan? If yes, short-term? (⬍ 1 year) Medium-term? (1–3 years) Longer term? (⬎ 3 years)

Smaller Firms

Larger Firms

Chi-Square

46.9% 50.7% 65.0% 33.3%

73.6% 63.0% 85.5% 52.3%

21.5** 2.7* 11.3** 6.3**

* p ⬍ 0.10; ** p ⬍ 0.01.

As a result, H1a (formal marketing plans are less common in smaller firms than larger firms) is supported. H1b (market planning is more short-term in smaller firms) is only partially supported.

H2: Marketing Practices Comparing the marketing practices across firm size (and controlling for age, growth rate, and use of technology), both similarities and differences are identified. First, Table 6 shows that significant differences were found for seven of the thirty-one variables that comprised the eight dimensions measured in this study. These results indicate that relative to larger firms, smaller firms are more likely to emphasize the product/service offering in their market planning activities. They are also more likely to: 1. be interpersonal in their contact with primary customers; 2. invest in personal relationships; 3. conduct marketing at a senior/general management level, rather than using specialist marketers; and 4. emphasize marketing communication that is directed to a specific customer segment rather than the mass market. These latter findings suggest that small firms are more relational than larger firms in some of their marketing practices. This is supported by other patterns in Table 6, where for example, a simple comparison of means in the “exchange duration” dimension shows that small firm means for the three relational variables (b-d) exceed those of larger firms. Although not statistically significant, the direction of these results is informative. It is equally important to note that, although statistically significant results exist for certain variables, 1) such differences appear for a relatively small number of variables (7 of 31), and 2) the differences might not always be managerially important. For example, although primary customer contact is found to be more interpersonal for smaller firms, both types of firm report high levels of interpersonal contact. Similarly, both types of firm report relatively low levels of communication to the mass market and the use of specialist marketers or the CEO in marketing activities. Both types also report relatively high levels of investment in personal relationships, targeted segment marketing, and a planning focus on the product/service offering. Thus, although significant differences do emerge, the general patterns of behavior are more similar than not. Furthermore, the variables comprising three of the eight dimensions were found to show no significant difference in terms of firm size (managerial intent, purpose of exchange, and exchange duration). For example, both types of firm report a relatively high emphasis on attracting customers with the purpose of generating a financial return.

538

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

TABLE 6 Comparing Marketing Practice by Firm Size Dimensions and Variable Managerial intent: a) attract customers b) retain customers c) develop cooperative relationships d) coordinate system-wide relationships Planning focus: a) product/service offering b) general customer base c) individual customers d) system-wide relationships Purpose of relational exchange: a) generate financial return b) acquire customer information c) build individual long-term relationships d) form system-wide relationships Primary customer contact: a) arms-length, impersonal b) somewhat personalized c) interpersonal Duration of relational exchange: a) no future personalized contact by firm b) some future personalized contact by firm c) ongoing personal contact with an individual d) ongoing personal contact with the system Resource investment: a) ‘‘4P’’ activities b) communication technology c) personal relationships d) organizational/system relationships Marketing done by: a) functional marketers b) specialist marketers c) all employees d) chief executive Marketing communication: a) firm to mass market b) firm to specific segment c) individual employees with their customers d) senior managers with other senior managers

Type of Marketing

Smaller Firms Mean1

Larger Firms Mean

Transaction Database Interaction Network

4.04 4.19 3.90 3.21

4.08 4.35 3.88 3.29

0.35 0.01 0.84 0.05

Transaction Database Interaction Network

4.44 3.95 3.62 3.07

4.26 4.09 3.74 3.09

4.05* 0.83 1.00 0.03

Transaction Database Interaction Network

4.33 3.27 4.14 3.41

4.35 3.30 4.01 3.46

1.10 0.52 0.87 0.27

Transaction Database Interaction/ Network

1.73 2.96 4.47

2.08 2.88 4.08

2.35 1.04 8.2**

Transaction Database Interaction Network

1.57 3.77 4.05 3.88

1.70 3.63 3.81 3.58

0.67 0.84 0.84 2.34

Transaction Database Interaction Network

3.84 2.79 4.01 3.32

4.04 3.18 3.67 3.33

0.91 0.95 6.91** 0.01

Transaction Database Interaction Network

3.59 2.23 2.96 3.38

3.96 2.89 2.89 2.86

0.66 6.82** 0.05 3.26*

Transaction Database Interaction Network

2.50 4.06 3.10 4.06

3.16 3.73 3.22 3.94

9.20** 6.92** 0.64 0.76

F-value2

*p ⬍ 0.10; **p ⬍ 0.01. 1 The scores for each construct are on a scale of 1 to 5, where 1 ⫽ never and 5 ⫽ always. 2 The F-values are for the main effects of firm size. The ANOVA models also included variables for the firm’s age, growth rate and use of technology as covariates.

These behaviors are conceptualized by Coviello et al. (1997) to reflect Transaction Marketing. Although the mean ratings for investment in communication technology, acquiring customer information, and communicating with the customers in a personalized manner are low across smaller and larger firms, they both appear to practice aspects of Database Marketing. For example, both types of firm report an emphasis on retaining customers, and their customer base is a major focus in their market planning. Both also practice Interaction Marketing, as evidenced by the relatively high mean ratings ac-

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

539

TABLE 7 Comparing the Use of Performance Measures by Firm Size Type of Performance Measure

Smaller Firms Mean1

Larger Firms Mean

F-value2

2.89 3.27 4.37 2.45

3.81 3.56 4.53 2.77

11.7** 3.7* 2.7* 5.0*

Competitive (e.g., market share) Customer-based (e.g., satisfaction) Financial (e.g., profit) Marketing effectiveness (e.g., time to market)

* p ⬍ 0.10; ** p ⬍ 0.01. 1 The scores for each construct are on a scale of 1 to 5, where 1 ⫽ never and 5 ⫽ always. 2 The F-values are for the main effects of firm size. The ANOVA models also included variables for the firm’s age and growth rate as covariates.

corded to the intent to build long-term, individual relationships with customers, where marketing communication is at a one-to-one, personal level. Finally, both practice aspects of Network Marketing, as senior managers actively position their firm with managers of other firms in their wider set of marketing systems. Overall, the combined results show that H2 (The marketing practices of smaller firms differ from those of larger firms in that they are more likely to practice Interaction Marketing and Network Marketing) is only partially supported given the similarities found across the eight dimensions.

H3: Market Performance Measurement The aggregate results for performance measurement indicate that a high proportion of firms (58.7%) report that they ‘always’ use financial measures such as profitability. In contrast, a relatively lower proportion of firms ‘always’ use competitive measures such as market share (30.0%), and customer-based measures such as satisfaction scores or retention levels (22.5%). Only 6.8% of all firms measure their performance in terms of the effectiveness of marketing activities (for example, time-to-market for new products). Similar to the previous findings, the comparison of means identifies clear differences of firm size when controlling for other firm characteristics. As found in Table 7, smaller firms are less likely than larger firms to use any of the four types of measures, and the largest differences appear for competitive measures of performance. Overall, both smaller and larger firms clearly emphasize financial data. In comparison, larger firms appear to make more use of competitive measures and also, customer-based information. The marketing practice data found in Table 6 also supports these findings in that the variable with the highest mean rating for Managerial Intent is “to generate a financial return”, and the lowest is for “acquiring customer information.” This applies to both smaller and larger firms and is supported by the qualitative data that shows that both types of firms identify the need to improve their customer-based measures. Furthermore, although both types of firms indicate that they are trying to improve their measurement of performance, larger firms are particularly interested in identifying and managing profitable customers to help focus their efforts. This shows an integrated approach to performance measurement in that more than one type of measure is combined. Based on this data, H3a (market performance measures of smaller firms are less comprehensive in scope than in larger firms) is supported. H3b (market performance

540

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

measures of smaller firms differ from larger firms in that they emphasize customer-based information and profitability measures) is only partially supported.

DISCUSSION AND IMPLICATIONS This study examined three major hypotheses related to contemporary marketing practice and firm size. We hypothesized that relative to larger firms, smaller firms would approach market planning differently (H1), emphasize Interaction and Network Marketing rather than Transaction and Database Marketing (H2), and attend to different market performance measures (H3). The results in fact offer mixed support for these hypotheses, in that, although some support is found for the expected differences, a number of similarities are also identified. What follows is a discussion of the key findings, their theoretical significance, and suggestions for both managerial practice and future research. At one level, contemporary marketing in smaller firms appears to be somewhat different from that practiced by larger firms. For example, smaller firms seem to be more relational than larger firms in their approach to marketing communication and primary customer contact, investment in marketing resources, and the level at which marketing activities are conducted in the firm. Therefore, smaller firms appear to place more emphasis on direct relationships with specific customers and other players in a market network. Traditional transaction approaches are difficult to engage in because of various resource limitations: limitations which are less of an issue in a larger firm. These findings are perhaps expected given the personal nature of smaller firms, the opportunity for all employees to have high levels of customer contact, and the small firm’s relatively simple structure, and limited scope and resources (Schollhammer and Kuriloff 1979; Carson 1990; Meziou 1991; Carrier 1994). Size-related differences are also reflected in the approach to market planning, where smaller firms are found to be more informal than larger firms. This supports Kinsey (1987), Brush (1992), and Carson and McCartan-Quinn (1995). Interestingly, small firms also place greater importance on the product/service offering in the context of market planning. Although this is perhaps surprising given their emphasis on market relationships, it likely reflects the inherent product orientation often found in entrepreneurial organizations. Smaller firms also use fewer ways to measure market performance than larger firms. This suggests that larger firms are more comprehensive in this task, thus supporting Smith et al. (1988) and Shipley and Jobber (1994). Although both types of firm focus on financial indicators, smaller firms do not use other types of measures (especially competitive comparisons) to the same extent. This finding supports the earlier argument made by Carson et al. (1995) regarding the relevance of measures such as market share to the smaller organization, and also Carson’s (1990) view of the small firm’s price/profit orientation. Interestingly, smaller firms appear to make less use of customer-based information to help evaluate their performance. This result is somewhat unexpected given smaller firms are assumed to enjoy easy access to market feedback, due to their closeness to customers and short lines of communication (Carson et al. 1995). It is, however, possible that the research instrument captured formal evaluation (such as customer satisfaction studies) rather than informal feedback, thus explaining the relatively low rating. Given the above, it might be argued that the conduct of marketing in smaller firms is different from that in larger firms and should be recognized as such in research and

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

541

education. Such an argument would, in fact, support most of the existing literature. There are, however, a number of important points to recognize before reaching this conclusion. First, smaller and larger firms have a large number of similarities in their marketing practice across the three dimensions describing the intent of marketing decisions, the purpose of exchange, and the expected duration of customer relationships. Second, there are also similarities within the other five dimensions, such as resource investment, customer contact, and market planning. These findings contradict the marketing literature that has consistently found large firm/small firm differences. Third, and perhaps most important, the similarities in practice encompass both the traditional and more contemporary views of marketing. That is, the current business practices of both smaller and larger firms involve managing the marketing mix to attract customers (Transaction Marketing). They also emphasize the development and management of personal relationships with individual customers (Interaction Marketing) and efforts to position the firm in a net of various market relationships (Network Marketing). Thus, both the transactional and relational paradigms are relevant in modern marketing, regardless of firm size. In terms of Database Marketing, however, it is interesting to note that neither smaller nor larger firms appear to practice this type of marketing to any great degree. This is perhaps not surprising for small firms given Database Marketing is both knowledge and resource-intensive. However, larger firms also appear to focus on other types of marketing, in spite of the qualitative data which indicates that these firms perceive a need to focus on developing added-value relationships with specifically targeted customers—an objective that can be partially achieved through Database Marketing.

Theoretical and Empirical Implications Overall, this study enriches our understanding of contemporary marketing across firm size. By taking a more holistic and integrated view of marketing, it provides greater realism to our appreciation of issues at the marketing/entrepreneurship interface. On one hand, it confirms that the traditional models related to market planning and performance measurement are not fully evidenced in the practices of smaller firms. These results clearly support the mainstream entrepreneurship literature. On the other hand, the study also shows that aspects of existing marketing models and the traditional paradigm do fit the environment, behaviors, and processes found in entrepreneurial organizations. For example, Transaction Marketing is in evidence. More importantly however, the findings show that to understand and assess small firm practices, we must move beyond the traditional marketing paradigm to appreciate a broader, more modern perspective. This applies to both marketing research and education. Thus, the key implications of this study are as follows. First, to accurately depict and understand differences in approaches to contemporary marketing, our theoretical framework should include the full spectrum of marketing types. The results of this study suggest that much of the current research that suggests deficiencies in the marketing approaches of smaller firms may be inappropriate given its limited and dated conceptualization of marketing. Studies that attempt to assess the presence of a particular type of marketing (for example, Transaction Marketing) are not likely to capture the scope of what is really being practiced. This concern is valid regardless of firm size. Second, it is important to recognize that small firm marketing, although unique in certain aspects, is not fundamentally different from large firm marketing. Thus, although

542

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

the entrepreneurship literature criticizes smaller firms as lacking in marketing abilities and different from larger firms, the findings of this study argue that in a modern world, we can, in fact, identify similarities in practice across firm size. Related to this, the results suggest that future developments should allow for an understanding of when and why different types of marketing are being practiced and with what effect on firm performance. In addition, it is important to understand the transition from one type of marketing to another, and/or the practice of multiple types of marketing within the same firm. Finally, it is likely that most firms will experience the pressure to develop the capacity to practice all four types of marketing within their organization. For example, small firms will grow in size, scope, and resource base and will be driven to develop more sophisticated traditional marketing abilities and infrastructure. Larger firms may attempt to get closer to their various customers as a defensive measure in increasingly competitive markets and, as such, may emphasize aspects of relational marketing. Therefore, it is important that conceptualizations of marketing (like the one offered in this study) distinguish between these different types of marketing.

Practical Implications A number of managerial implications can be drawn specifically for managers in smaller firms. The type of marketing practiced by smaller firms has a relational emphasis, and, therefore, managers should focus on understanding, establishing, and facilitating both personal and business relationships such that a network of viable contacts is developed. Investment (time, personal effort, and financial resources) should be placed in both individual relationships and the development of the firm’s position in a network of firms. As the firm grows, this understanding of relational marketing will serve the firm well, given managers in larger firms report a perceived need to improve their skills in this area. Furthermore, Transaction Marketing is also relevant to smaller firms, and in fact, they clearly practice aspects of this type of marketing. By learning how to competently manage the areas of product, price, promotion, and distribution in a manner appropriate to the smaller firm, the organization can develop a base on which to develop customer relationships and can also develop the capacity to compete as a larger organization. Third, as the small firm becomes more experienced and advanced in its use of technology, managers may also benefit from understanding aspects of Database Marketing. This will become increasingly important as customers continue to increase their technological sophistication and use of information technology in decision-making. Likewise, larger firms will also be likely to apply Database Marketing in an effort to manage smaller segments on a more personal basis. In fact, there may be opportunities for technology transfer and learning between smaller and larger firms as both types of organization develop expertise in this less prevalent type of marketing. With regards to planning and performance measurement, a number of implications can also be drawn. For example, smaller firms are more informal than larger firms in terms of their market planning. As managers in these firms seem to want to improve their planning processes, it might be suggested that this in fact be done. However, this study does not link planning to market performance, and, therefore, it is inappropriate to suggest that smaller firms should become more formal, as their informality may well be an inherent characteristic of an entrepreneurial organization (and not necessarily a weakness). In terms of performance measurement, the results of the study show that smaller firms tend to rely primarily on financial indicators. Thus, managers should be

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

543

aware of the risk of being myopic and seek to capitalize on their close market contact by better use of customer feedback. They might also learn from the more holistic approach taken by larger firms. Managers should, however, question the relevance of market performance measures in the context of their specific firm and its environment and not simply adopt formal large firm tools without due consideration. Finally, an understanding of small firm practices relative to those of larger firms should help managers identify which areas of marketing may be challenged as they evolve to become a larger organization. Beyond the small firm, there will be increasing pressure on all firms to have the capability to effectively practice different types of marketing as the firm and its portfolio of relationships evolves. An appreciation of the various elements of the different types of marketing examined in this study will help to guide managers in developing their ability to effectively implement both transactional and relational marketing. In particular, managers will have to be sensitive to the knowledge, resources, and systems underlying the different types of marketing. In this regard, it is likely that firms of different size might learn from one another in their ongoing development of broader marketing capacity.

Limitations and Research Implications There are certain limitations to this study that should be recognized and overcome in future research. First, although both country samples are reasonably representative of their respective markets, they were convenience samples. Future research might, therefore, involve random sampling, and the study could be extended to other countries. Second, as the investigation relied on the self-reports/perceptions of single managers within the organization, future research could obtain information from multiple respondents across levels and functions. It might also assess actual practices and expand on the detail accorded to the measures for market planning and performance measurement. Third, marketing practice is likely to evolve with firm size and maturity and be tempered by industry conditions. Snapshots of marketing practice will have limited relevance unless repeated frequently over time. Thus, although this cross-sectional study provides a useful base, longitudinal, contextually-sensitive data is best suited to capture evolutionary marketing practices and their various context influences. The results reported in this study could also be complemented by more qualitative case data, allowing for a more holistic understanding of individual firm marketing practices and their context influences. Beyond these points, it is clear that while differences might exist between smaller and larger firms, many similarities can be identified in marketing practice. Additional investigation of the similarities in marketing practice would therefore be useful, particularly in terms of understanding how firms approach and manage their variety of market relationships, regardless of size. Ideally, future research would also identify the requisites for the effective practice of all four types of marketing outlined by Coviello et al. (1997) and relate their implementation to measures of the firm’s performance over time. Finally, it is important to note that the findings indicate that, although size can be controlled and identified as a key influence, it is not independent of other firm characteristics such as firm age, growth rate, or use of technology. Given the analysis for this paper focused solely on firm size (treating the other variables as co-variates), further research could clarify how firm size interacts with other firm characteristics. This might be accomplished by developing formal models and testing how the different variables

544

N.E. COVIELLO, R.J. BRODIE, AND H.J. MUNRO

interact and influence marketing activities. Similar analysis could examine sector influences, as although no association was found between size and sector in this study, a larger sample and/or more refined set of measures for both size and sector might yield different results.

REFERENCES Achrol, R.S. 1991. Evolution of the marketing organization: New forms for turbulent environments. Journal of Marketing 55(4):77–93. AMA board approves new marketing definition. 1985. Marketing News March 1:1. Ahire, S.L., and Golhar, D.Y. 1996. Quality management in large vs small firms: An empirical investigation. Journal of Small Business Management 34(2):1–13. Andrus, D.M., and Norvell, W. 1990. Marketing differences between large and small firms: A test of the industrial/consumer dichotomy hypothesis. Akron Business and Economic Review 21(3):81–90. Boag, D.A. 1987. Marketing control and performance in early growth companies. Journal of Business Venturing 2:365–379. Bonaccorsi, A. 1992. On the relationship between firm size and export intensity. Journal of International Business Studies 23(4):605–635. Brush, C. 1992. Marketplace information scanning activities of new manufacturing ventures. Journal of Small Business Management 30(4):41–51. Carrier, C. 1994. Intrapreneurship in large firms and SMEs: A comparative study. International Small Business Journal 12(3):54–61. Carson, D. 1990. Some exploratory models for assessing small firms’ marketing performance—a qualitative approach. European Journal of Marketing 24(11):5–51. Carson, D., and McCartan-Quinn, D. 1995. Non-practice of theoretically based marketing in small businesses—issues arising and their implications. Journal of Marketing Theory and Practice 3(4):24–32. Carson, D., Cromie, S., McGowan, P., and Hill, J. 1995. Marketing and Entrepreneurship in SMEs: An Innovative Approach. Hemel Hempstead: Prentice Hall (International) Ltd. Christopher, M., Payne, A., and Ballantyne, D. 1991. Relationship Marketing: Bringing Quality, Customer Service, and Marketing Together. Oxford: Butterworth Heinemann. Coviello, N.E., Brodie, R.J., and Munro, H.J. 1997. Understanding contemporary marketing: Development of a classification scheme. Journal of Marketing Management 13(6):501–522. Coviello, N.E., and Munro, H.J. 1995. Growing the entrepreneurial firm: Networking for international development. European Journal of Marketing 29(7):49–61. Day, G.S. 1992. Marketing’s contribution to the strategy dialogue. Journal of the Academy of Marketing Science 20:323–329. Golhar, D.Y., and Deshpande, S.P. 1997. HRM practices of large and small Canadian manufacturing firms. Journal of Small Business Management 35(3):30–38. Gronroos, C. 1990. Relationship approach to the marketing function in service contexts: The marketing and organization behaviour interface. Journal of Business Research 20(1):3–11. Gronroos, C. 1994. From marketing mix to relationship marketing: Towards a paradigm shift in marketing. Asia-Australia Marketing Journal 2(1):9–29. Gronroos, C. 1999. Relationship marketing: Challenges for the organization. Journal of Business Research (forthcoming). Hills, G.E., and LaForge, R.W. 1992. Marketing and entrepreneurship: The state of the art. In D.L. Sexton and J.D. Kasarda, eds., The State of the Art of Entrepreneurship. Wellesley: Babson College. Hisrich, R.D. 1992. The need for marketing in entrepreneurship. Journal of Business and Industrial Marketing 7(3):53–57.

AN INVESTIGATION OF MARKETING PRACTICE BY FIRM SIZE

545

Jaworski, B.J., and Kohli, A.K. 1993. Market orientation: Antecedents and consequences. Journal of Marketing 57(3):53–70. Kinsey, J. 1987. Marketing and the small manufacturing firm in Scotland: Findings of a pilot survey. Journal of Small Business Management 25(2):18–25. Kotler, P. 1992. Marketing’s new paradigm: What’s really happening out there. Planning Review 2(5):50–52. Meziou, F. 1991. Areas of strength and weakness in the adoption of the marketing concept by small manufacturing firms. Journal of Small Business Management 29(4):72–78. Mohan-Neill, S. 1993. The influence of firm’s age, size, and growth rate on the marketing strategy and orientation of firms. In G. Hills, R.W. LaForge, and D. Muzyka, eds., Research at the Marketing/Entrepreneurship Interface. Chicago: Institute for Entrepreneurial Studies. Mohan-Neill, S.I. 1995. The influence of firm’s age and size on its environmental scanning activities. Journal of Small Business Management 33(4):10–21. Moller, K. 1992. Research traditions in marketing: Theoretical notes. In Economic and Marketing Essays in Honour of Goesta Mickwitz. Helsinki: Multiprint. Muzyka, D., and Hills, G.E. 1993. Introduction. In G.E. Hills, R.W. LaForge, and D. Muzyka, eds., Research at the Marketing/Entrepreneurship Interface. Chicago: Institute for Entrepreneurial Studies. Narver, J.C., and Slater, S.F. 1990. The effect of a market orientation on business profitability. Journal of Marketing 54(4):20–35. Nevin, J.R. 1995. Relationship marketing and distribution channels: Exploring fundamental issues. Journal of the Academy of Marketing Science 23(4):327–334. Nunnally, J.C. 1978. Psychometric Theory (2nd ed.). New York: McGraw-Hill. Pearson, J.N., and Ellram, L.M. 1995. Supplier selection and evaluation in small versus large electronics firms. Journal of Small Business Management 33(4):53–65. Peterson, R.T. 1989. Small business adoptions of the marketing concept vs other business strategies. Journal of Small Business Management 27(1):38–46. Romano, C., and Ratnatunga, J. 1995. The role of marketing: Its impact on small enterprise research. European Journal of Marketing 29(7):9–30. Schollhammer, H., and Kuriloff, A. 1979. Entrepreneurship and Small Business Management. Chicester: John Wiley. Shama, A. 1993. Marketing strategies during recession: A comparison of small and large firms. Journal of Small Business Management 31(3):62–72. Sheth, J.M., Gardner, D.M., and Garrett, D.E. 1988. Marketing Theory: Evolution and Evaluation, New York: John Wiley. Shipley, D., and Jobber, D. 1994. Size effects on sales management practices of small firms: A study of industrial distributors. Journal of Personal Selling and Sales Management XIV(1):31–43. Smith, K.G., Gannon, M.J., Grimm, C., and Mitchell, T.R. 1988. Decision making behaviour in smaller entrepreneurial and larger professionally managed firms. Journal of Business Venturing 3:223–232. Sriram, V., and Sapienza, H.J. 1991. An empirical investigation of the role of marketing for small exporters. Journal of Small Business Management 29(4):33–43. Webster, F.E. 1992. The changing role of marketing in the corporation. Journal of Marketing 56(4):1–17. Weinrauch, J.D., Mann, O.K., Robinson, P.A., and Pharr, J. 1991. Dealing with limited financial resources: A marketing challenge for small business. Journal of Small Business Management 29(4):44–54. Weinstein, A. 1994. Market definition in technology based industry: A comparative study of small versus non-small companies. Journal of Small Business Management 32(4):28–36. Zinkhan, G.M., and Hirscheim, R. 1992. Truth in marketing theory and research: An alternative perspective. Journal of Marketing 56(2):80–88.