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SMALL BUSINESS BANKRUPTCY CAUSED BY POOR MARKETING Don B. Bradley III, University of Central Arkansas ABSTRACT Lack of marketing skills is a major contributor to the failure of small businesses. This survey conducted during 1995 and 1996 also found that lack of marketing research was a contributor to failure. 0ther factors to consider in small business failures are: business owners not developing products that differed from their competitors, lack of an understanding of the marketplace, and most participants never practiced target marketing techniques. INTRODUCTION Business failures rose significantly in nearly every industry in the United States during the first half of 1997 (DiBernardo 1997). However the smartest entrepreneurs try to prevent business failure by constantly redefining themselves. "They are rethinking their market, and constantly reinventing their products and services. The ones who stay on top do so because they stay ahead of the curve, identifying economic trends more quickly and accurately than their competitors" (Buss 1996). The key to being successful in the 90s is this ability to constantly come up with new ways to market your product. Small businesses sometimes overlook the fact that they need to continue to market new ideas and products in order for their business to survive and not grow stagnate. One of the main keys to success in small business is to carry products that most of the chains that are out there do not. Most failures are caused by managers who have an illusion of invincibility instead of a concept of constant vigilance. This illusion is very evident from the responses dim were received from this research. Many of these small businesses did not do well on product variation. It is the author's opinion that just the experience by the small business owner of spending pan of their career on the sales floor dealing directly, with the customers, would lead to less business failures. Another area that small businesses are overlooking is the area of market research. In the survey question about whether or not businesses did market research, we found the 34% of the people never did any market research after their business was opened. Only 55% of the people surveyed did "a little" or "very little" market research. Of the businesses surveyed, it can be concluded that the lack of marketing research after the business was opened could have been a major factor in the failure of the business. Not only does a business have to continue to market new ideas, but they must also be willing to do market research and have a marketing plan in writing after their business opens. Many of the businesses that were surveyed did not have a written marketing plan, nor did they have an understanding of the marketplace where their small business was located. These factors along with not knowing the demographic characteristics of their customers lead to many businesses having to file

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bankruptcy. SURVEY The participants of this survey were selected at random from those individuals who had filed bankruptcy during the calendar years 1995 and 1996. The respondents were selected from the south and southwestern part of the United States. One thousand participants were mailed survey forms with 365 individuals returning their questionnaires. To obtain the final results, some participants who did not respond to the first mailing were sent second mailings. Failure had many meanings in this survey. Not all businesses actually closed because of reorganization. Some were eventually sold, some people just decided that they did not want to be in business anymore, and some just gave up. For example the Edmonton's Diversity Corporation recently acquired the world-wide manufacturing and distribution rights to a new technology. Diversity Corporation's Director of Investor Relations, Patrick Starr, felt that the previous owner of the product did a poor job in marketing it (Franco 1997). The term, "failure," thus has many meanings. ANALYSIS The results for the issues of interest in the study are shown in Table 1 on the following pages. The results indicated that onehalf the respondents had "Low" or "Very Low" marketing skills. This factor alone indicates that the lack of marketing was a strong indicator in the failure of these small businesses. When only nine percent of the respondents indicated that they felt they had excellent marketing skills, one could assume this was an indication of the respondents' lack of marketing training. Of the skills needed to be successful in a small business, marketing ranks very high. These marketing skills do not mean that you have to be the first in the market with a product or concept. "Wal-Mart wasn't the first discount department store, Holiday Inn wasn't the first roadside motel and McDonald's definitely wasn't the first restaurant to sell a hamburger. But the people behind these companies are the innovators who've had the biggest impact on their industries, changing the way we do business" (Barnes 1996). Table 1 Marketing Activities of Small Businesses (Prior to Filing for Bankruptcy) ============================================================================== 1. How would you rate your overall marketing skills? Raw Score Percentage Excellent 34 9 Very Good 53 15 Good 94 26 Low 146 40 Very Low 38 10 2.

Did you use target marketing of customers in your small business: Raw Score Percentage All the time 37 10 Majority of the time 56 15 Never 173 48

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A Little Very Little

74 25

20 7

3.

After you opened your small business, did you conduct marketing research? Raw Score Percentage Very Great Amount 21 6 Great Amount 19 5 Never 126 34 A Little 94 26 Very Little 105 29

4.

Did you have a marketing plan Raw Yes No

5.

How well did you buy or develop products or services that were different than your competitor? Raw Score Percentage Very Well 31 8 Well 27 7 Never 138 38 A Little 53 15 Very Little 116 32

6.

Did you feel you had an understanding of the marketplace where your market in general? Raw Score Percentage Very Strong 49 13 Strong 163 45 No 95 26 A Little 39 11 Very Little 19 5

7.

Did you know the demographic characteristics of your customers or your market in general? Raw Score Percentage Very Strongly Knew 33 9 Strongly Knew 48 13 Did not Know 201 55 Knew a Little 41 11 Knew Very Little 42 12

8.

When you were selling to a customer, did you have a feel about the likelihood of the sale? Raw Score Percentage Very Strong Feeling 31 8 Somewhat Strong Feeling 75 21 No Feeling 113 31 A Little Feeling 40 11 Very Little Feeling 32 9 Did Not Sell 74 20

in writing? Score Percentage 138 38 227 62

============================================================================== Target marketing was never utilized by 48% of the respondents to identify customers. Without target marketing it is hard for the small business to be able to customize their products and services to fit the needs of their customer. Ten percent of the respondents utilized target marketing "All the Time," when

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marketing to their customers. Seventy-five percent of the respondents either "Never" did or did "A Little" or "Very Little" target marketing. This leaves a strong indication that the respondents to this survey did not know who their customer was; thus, they would have a very hard time satisfying the individual wants and needs of their customers. Some respondents (11%) did either a "Very Great Amount" or a "Great" amount of marketing research. 34% did absolutely "No" marketing research and 55% did "A Little" or "Very Little." Almost a total lack of marketing research being done after the business was opened is a strong indicator of why these businesses failed. Evidently, the small business owners opened the businesses and then let the everyday problems of operations take over while they lost contact with their customers. The lack of marketing research means that these businesses had absolutely no feel for who their customers were, what their wants and needs were, or from where their customers came. First of all a small business should have a well-developed business plan, however the next step in being a success is to develop a marketing plan that outlines an owner's strategies for selling their products or services (Atlanta Business Chronicle 1997). Having a written plan for your business is very important in not only receiving a loan, but also having a direction for your business to follow. "Implementing an image marketing plan is not only an effective and economical way to become visible and credible in the marketplace, it builds image equity that will pay dividends later" (Summers 1997). A lack of a marketing plan was another factor in the failure of these small businesses. It is alarming when only 38% of these businesses actually had a written marketing plan. The question then arises, of these 38%; did they follow their plan? Definitely a lack of planning has to be a major factor in business failure. Respondents (15%) indicated that they did "Very Well" or "Well' on product differentiation. One of the keys to survival for a small business, especially in retailing, is to carry products that the major chains do not carry. As is indicated by the response to this question, 85% of these small businesses that failed did "Never," "A Little," or a "Very Little" product differentiation. This question is just another indication of these failed small businesses not knowing what their customers needed or wanted. Many of these small businesses developed the attitude that, "All you have to do is put products in the store and they will come." This type of thinking has closed a number of small businesses. The majority of respondents to this question indicated that they felt that they had an understanding of their local market. Fifty-eight percent indicated they had a "Very Strong" or "Strong" understanding. It is interesting, though, that 26 percent of the respondents had "No" understanding of their local market. You begin to wonder why these people even went into business in the first place. The researcher finds the answer to this question rather puzzling because of the lack of marketing knowledge indicated in the previous questions. This lack of knowledge would indicate that these small businesses that failed actually had very little understanding of the marketplace.

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The majority (55%) of the businesses responding did not know the demographic characteristics of their customers. 78% of the respondents "Did not Know", "Knew a Little" or "Knew Very Little" about the demographics of their customers. This indicates again that the failed small businesses did not know or understand their customers. Customer knowledge is a key to developing the right marketing mix. "Very Strong Feeling" and "Somewhat Strong Feeling" was the response to this question by 29% of the respondents. Unfortunately, 51 percent of the respondents either had "No feeling" or "Did Not Sell." The lack of marketing skills is very evident in the response to this question. These failed small businesses evidently were very strong on production and service knowledge, but very weak in marketing skills. Lack of marketing skills is definitely a major factor in the failing of these businesses. The basic skill of selling seems to be a mystery to the majority of the respondents to this question. CONCLUSION Lack of marketing skills is a major factor of small business failure. Only 9% of the respondents to this survey indicated that they felt that they had excellent marketing skills. 50% of the respondents indicated that they had "Low" or "Very low" marketing skills. 48% never used target marketing to identify customers. Only 11% of the respondents did either a "Very Great" or a "Great" amount of market research. The majority of the small businesses that failed had no written marketing plan and no marketing research was done by 34% of the respondents. The question still remained of the 38% that did have a marketing plan, "How good a plan was it?" Product differentiation was of little concern with most of the respondents. Many of the small businesses developed the attitude that all you have to do is put products in the store and the customers will come. The majority (71%) of the small businesses responding had "Very Little" or "No" experience in selling. 26% of the respondents indicated that they had no understanding of their local market while, 78% of the small businesses that failed "did not know", "knew a little," or "knew very little" about the demographic characteristics of their customers. without a strong sense of selling and marketing skills, it is extremely hard for any small business owner to understand their customers. By looking at the survey results, we see that the lack of market planning and research is a major factor in the failure of many small businesses. REFERENCES Atlanta Business Chronicle (1997), "How to Write a Business Plan," 20 (September), 8. Barnes, Eric (1996), "10 Top Titans of Enterprise," Income Opportunities, (May). Buss, Dale D. (1996), "Ahead of the Curve," Income Opportunities, (May).

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Franco, Sam (1997), "Diversity if the Mother of Invention," Alberta Report/Western Report, 26 (August), 14. DiBernardo, Neil (1997), "Business Failures Rise in Nearly Every Industry Sector in First Half of 1997," Dun and Bradstreet, http://www.dnb.com/newsview/1015newsI.htm (September). Summers, Kathy (1997), "Marketing Your Image in Just Seven Steps," Business Journal Serving Phoenix and the Valley of the Sun, 17 (September), 47.

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