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Marketing Problems faced by MSEs

Product

The business line of MSE activities in Ethiopia is relatively similar. A lack of product diversity, however, is prevalent and as a result similar products are over-crowding the market. Some micro enterprises shift from one product to another, and in doing so, capture better market opportunities. Nevertheless, as soon as the market has established itself, a multitude of further micro enterprises start off in the same business and this causes the selling price to fall immediately. Furthermore, certain MSEs lack the skill to modify their products, such as handicraft products, pottery, furniture, metal products, kitchenware etc. There is also lack of sufficient range of product designs. Most products that are made available by MSEs can also be obtained from medium-sized enterprises that mostly have market advantages in terms of their size alone. 
 

Price

The following are the most important problems in relation to price. Some MSEs sell at break-even or even below cost. Some of the reasons for selling at such a lower price can be attributed mainly to:

• lack of basic costing knowledge;

• overhead costs are mostly not calculated as expenses;

• the fact that salaries or wages of family members involved in production or sales are overlooked as cost product;

• not knowing the exact earnings from sales separately;

• during and at the end of the day all family members spend the money earned from sales without recording;

• manufacturers do not correctly know how much raw material and accessories are required to make one unit of a product.

Most MSEs do not know whether they actually make profit or not. They express their success only by accentuating the changes they make. Examples:

• installation of new electric and water line;

• buying radio, cupboard, or other furniture;

• buying a goat for milking;

• sending children to school;

• improving their small house;

• children eating relatively more food compared to what they used
  to eat.

In general, MSEs tend to overprice their products, with some under-pricing due to lack of costing skills as well as competition.

In some instances MSEs are forced to sell at any lower price, due to the existence of larger enterprises, which sell similar products with reduced prices. For instance, during peak seasons farmers from the vicinity take products such as vegetables, pepper, seeds, charcoal, or wood to the towns and sell them on common market days. During such periods the MSEs are forced to sell at a lower price unless the demand is higher compared to the supply.
 

Sales

The micro enterprises that work in 'gulit' areas do their business on the sidewalk or by the roadside. The majority of them sell products such as tomatoes, onions, seeds, 'enjera', 'teff', and pottery products. Traders in this category face problems such as:

• textile products being exposed to too much dust;

• pottery products are exposed to high risk of breakage;

• as the result of poor environmental hygiene, food items get spoiled;

• there are limited market outlets for some products.

Some products such as bread, 'enjera', milk and others are sold on a door-to-door basis. In areas where such services are of frequent practice the relatively bigger enterprises must follow the same offering not to loose market share. This makes the competition stiff.

In addition, family members with limited business management and salesmanship (mostly children) are involved in the operation of their respective family businesses. In such cases owners fail to control the daily sales transactions of the business. Most of the MSEs lack marketing skills. There are cases where they buy a product, which is momentarily not of constant demand.

In most cases, MSEs have limited means in obtaining effective and relevant data as well as information on market availability that can be obtained from Chambers of Commerce, MSE Development Agencies, associations as well as Trade, Industry and Tourism Bureaux. Nevertheless, MSEs have difficulties in getting their hands on adequate data and information. One of the reasons for this deficit is that many of the centres are not within the reach of most MSEs.

MSEs which usually intend to sell in an area far from their location are curbed in their selling activities due to the limited quality of infrastructure and high transportation costs. Shortage and lack of infrastructure such as adequate roads as well as, telecommunication and electricity facilities are all that prevent effective operation of MSE businesses. This fact results in MSEs being unlikely to sell to distant areas located far from their territory.

Promotion

Problems related to the promotion of products are listed below:

• Many MSEs plan on promoting their products, however, their budget is mostly tight.

• Even though some enterprises understand that issuing flyers, posters and business cards have promotional values, they refrain from undertaking such promotional activities to use the money for other urgent matters.

• Many MSEs are not correctly informed on how to join their respective Chambers of Commerce, or trade association of their industry. They seem not to be aware of the services that they could obtain from chambers and associations such as:

  • issuing journals;

  • organizing promotional events;

  • organizing trade fairs;

  • advertising MSEs' products;

  • upgrading skills;

  • assisting MSEs in finding market outlets;

  • solving general market outlet problems.

Certain MSEs that have previously participated in trade fairs fail to follow up, simply due to lack of awareness and skill. Most MSEs are of the opinion that a mere participation in trade fairs is enough to promote their products.
 

Competition

As is mostly the case and common recognition, "Competition is Cruel", which implies that some larger companies in relation to MSEs have advantages due to:

• selling at reduced price without reducing product quality using economies of scale;

• customer targeting capacity;

• proper and intensified product/service advertising capacity;

• good personal contacts and networks;

• sound Industry reputation;

• sufficient information regarding existing market and capacity to exploit more market opportunities.

Competition is not only between the MSEs and the relatively bigger companies. There is also competition among operators within the MSE sector itself and between MSEs that are engaged in the same line of business. The latter is what concerns MSEs more than competition from the big companies, because they serve different market segments and target clients. The target clients for the MSE sector, in most cases, are people with lower level of income and with the need to invest rather on consumption goods/services than making long-term capital investments.
 

Competition among the MSEs is based on:

• capacity to keep quality of product/service to acceptable standards or as per the needs of the customers. Product quality can be achieved through various means such as using raw material with good quality, using improved and efficient production process/technology, proper finishing, and good storage facilities - both for raw material and finished products and use of skilled labour;

• charging a competitive price, i.e., setting product/service price at a reasonable amount compared to that of similar suppliers. Price reduction makes sense whenever it is possible for the operator to reduce his/her production cost through any possible means, but without sacrificing product quality. Efficient control over resources such as raw material, labour, tools/equipment, money, time, information, etc. are vital to control costs. The more costs are minimised the more the entrepreneur can reduce the selling price and attract a larger number of clients;

• selection of strategic location where customers can easily be obtained as well as easy accessibility of the enterprise to them;

• promoting product/service through possible cheap means, without incurring a high level of costs;

• selection of specific target markets or clients that the business can efficiently respond to their needs and purchasing power;

• level of salesmanship and customer relation.

Example for competition in terms of quality:

Some bakeries use 'white flour', while others use 'dark wheat powder ' to bake bread. Consumer preferences are more for white bread presently and, as a consequence, sellers of dark bread loose market shares. What makes this really a bad situation is that they do not even know the reason for the sales decline.

Example for competition in terms of price:

In the 'gulit' areas the spacing between the selling stands are at a minimum, which invites some smart sellers to adjust their selling prices after hearing the offered prices of their neighbouring seller. This enables them ultimately to grasp more clients.
 

Lack of Market related Knowledge

Due to this aspect being very vital to overcome marketing problems, the crucial points that MSEs are unable to meet are manifested by:

• lack of information where the best market areas are located;

• inability to analyse their respective market;

• lack of skills to set competitive prices;

• inability to effectively promote products.

The fact is that, in most cases, market studies are not carried out before a venture is undertaken within the market. This is also the case with regard to research, where during the life span of the enterprise no market research takes place.

Even though some organizations are helping MSEs to build their marketing knowledge, there is resistance on the part of many MSEs, mainly due to the low level of entrepreneurial awareness. On top of that, the experience of MSEs is confined only to local conditions and they are not well aware of what is going on in other parts of the country. In many cases people responsible for selling MSEs' products are family members, lacking general knowledge of marketing. Furthermore, business and family affairs are intertwined.

Experience has shown that many MSEs refuse or resist attending training programs that would help them enhance their marketing skills. They consider attending training programs as a waste of time. They rather give more emphasis on not missing a single daily sales opportunity. Many justifications can be given as to why MSEs do not like participating in training programs. Maybe the training is too much offer-oriented (supply-led) and does not meet the priorities of the MSEs, maybe its time schedule is not appropriate or MSEs are not well informed of the benefits the training can bring them.

The experience obtained from a local NGO known as Progynist has shown that the majority of its target MSEs prefer to attend training programs during mornings and evenings as well as on non-busy market days to spare their productive time to conduct business activities. Once the MSEs taste the benefits of the training, they opt to taking further training. It is therefore necessary to make training to MSEs need-based, scheduled to take place without interrupting normal business operations as much as possible and make additional efforts to raise MSEs' awareness on the importance of training.  
 

Retailing

Some MSEs may have the need for retail stores, in order to sell their products, but do not have the necessary retail outlets. In this case they are obliged to sell products on market days only. In some areas, where soft drinks and beer are sold, the area may be 'dull and ragged'. In addition, consumers prefer going to a better and active area. In such situations, food and local drinks/beverage sellers lose access to the market, with household consumers remaining their only customers.

Several MSEs engaged in activities such as shoemaking, furniture production, metal works, photography, hairdressing and catering might have relatively substantial number of customers provided that they are strategically located and have good salesmanship. However, accessing premises in good locations may not be easy for MSEs. There may be the problem of infrastructure as well as high rent for the premises. In one way or another, it is necessary for the MSEs to find out retail outlets to reach their customers.
 

Finance

In discussing marketing problems the subject of finance should not be overlooked. Shortage of funds discourages the smooth operation and development of MSEs. Even if there are credit facilities, some of the MSEs do not use the money for the intended purpose. They rather divert it for other unintended and non-productive expenditures. Consequently, the enterprises fail to return the money back to the lender on time. This can result in a loss of credibility to get repeated loans when needed most. In order to minimize the impact of shortage of working capital MSEs should be able to:

• have a budget/plan on how to use credit funds most effectively and for the intended purpose;

• have to be able to save money on their own for future investment in their business.
   

Raw Material and Source of Energy

During the months of July to September farmers are mainly engaged in farming activities. Due to this fact there will be a shortage of fuel wood and charcoal that are needed by MSEs producing local food items such as 'ambasha', 'dabo’, 'enjera' and local drinks like 'areki'. In such cases they are forced to use wood shaving and oil cake for fire. The smoke from these materials results in environmental pollution affecting their health.

Availability of raw material on credit from some suppliers would be seen as an opportunity for MSEs to overcome working capital problem. For instance, there are cases where cereals like 'teff' and wheat, which are required for production of 'enjera' and 'ambasha/bread' respectively are supplied to the operator on credit terms. Some plywood sellers also give lump of wood on credit to the furniture manufacturers. Yet, the receivables take longer time than expected, mostly after the MSEs suffer a lot from shortage of cash. There are also cases where suppliers consider credit sales only for raw materials with inferior quality. In such cases MSEs should take care of using such poor quality raw materials, which directly reflect on the quality of finished products.

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