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Gaining market legitimacy for young firm: Role of ‘entrepreneurial marketing’ strategies

17 Apr 2015 - {{hitsCtrl.values.hits}}

In the early 1950s Honda Motor Corporation was still a small Japanese company struggling to rise through the ashes of the Second World War. Headed by Soichiro Honda, a highly-driven young entrepreneur, the company had gained a reputation for making good quality motor cycles. In particular, Honda was known for its innovative engine technology and in 1951 Honda surprised motorcycle makers by a breakthrough four-stroke engine with double the horsepower of the competition. By 1960s, a mere 10 years after its founding, Honda was internationally reputed as the largest motorcycle maker but still something was missing. Honda was still not recognized in the fastest motorcycle category.
In 1954, Honda took a high-risk decision to enter the Isle of Man Tourist Trophy (TT) that was dominated by American and European motorcycle makers. This was laughed at by critiques as Honda had not yet developed a 10,000rpm engine. Honda mobilised its employees to achieve this goal but its first attempt in 1959 was a disastrous failure achieving the sixth and seventh places. But two years later, Honda stunned the whole world by winning the first to fifth places in the 125cc and 250CC categories with engines with 15,000rpm, faster than aircraft engines. The rest, as the saying goes, is history. Honda leveraged its quick found reputation – market legitimacy and increased income streams –to enter the car industry posing a challenge to the then auto giants Toyota and Nissan. Also the company started adopting its superior engine technology to many small appliances such as lawn mowers, snow mobiles, etc., thereby extending its market reach.

Market legitimacy and young firms
As the Honda example indicates, ‘market legitimacy’ is critical to any firm, small or large when faced with marketing a new product or service or expanding to a new market, domestic or international. Once the firm gains legitimacy, it provides access to resources and other firms will be willing to forge alliances with the ‘new kid on the block’.
As many experts believe, new ventures always suffer from a lack of legitimacy in the eyes of important stakeholders, such as venture capitalists, stock market analysts and consumers. They don’t have adequate resources to pursue aggressive marketing campaigns and protect their intellectual property in high-risk yet high potential markets. This is particularly a ‘do-or-die’ situation for high-tech start-ups where the firm has a substantial challenge in educating the mainstream buyers who will be sceptical about the new technology. As new firms, they have no established brands and the benefits of new technology are usually not clear. The writer’s association with these firms suggests that entrepreneurial young firms, irrespective of whether they are high-tech or low–tech adopt ‘entrepreneurial marketing strategies’ to gain market legitimacy, overcoming its “liability of newness”.

Entrepreneurial marketing
What are ‘entrepreneurial marketing’ strategies? This term has become popular after it was first introduced by a group of American and European marketing academics headed by Professor Gerald Hills, University of Illinois, Chicago some years ago. I had a close association with this group over many years. As this view suggests, although there is growing acceptance that marketing is critical for any firm’s success, some firms do better in marketing than others because of some entrepreneurial element in their marketing campaigns. In this sense entrepreneurial marketing (EM) strategies are ‘visionary marketing strategies’ that firms will adopt to successfully reach their intended markets to overcome their resource constraints.
These strategies sometimes will be different from conventional marketing practices that we find in Kotler’s textbooks. Conventional marketing starts with marketing research, followed by deliberate segmentation, targeting a carefully developed marketing mix and positioning. The entrepreneurial marketers may not necessarily follow that sequence. They will start with a highly innovative new product, try to make it customer intimate, initially market it in the entrepreneur’s network and then extend it to customers with similar profiles.
Returning to the ‘market legitimacy issue’ and within the space limitations of this article, the writer will discuss a limited number of EM strategies adopted by some of the young firms that the writer has studied over the last few years.

Launching the product in a reputed market
This strategy is widely adopted by both high-tech and normal product marketers. A good example can be the Australian small company Femm-Fatale that was started by two business graduate sisters to market a range of upmarket bathing products. They were passionate about bathing products and with the help of their father, who was a bio-chemist, they developed an upmarket product range using high-quality ingredients and innovative packaging with each scent personified by an individual character. The name Femm-Fatale was intended to invoke memories of the namesake movie of yester year with a seductive femalelead.
From day one, the new company was aiming at markets beyond Australia, always ‘fighting above their weight class’. First, Australia is a small market with 23.1 million people (slightly over the market size of Sri Lanka) and second, an Australian launch would not have achieved the global appeal - legitimacy - it demanded. Instead they decided to launch the product range at the high-end department stores Fred Segal and Henry Bendall in Los Angeles and New York. These stores attract affluent shoppers but moreover set the trends for new products. However, it was not a rosy path and the two founders spent months on working with buying companies, undertaking further improvements demanded by them and working with the media to design highly persuasive marketing communications. Having established legitimacy in the most demanding market in the world they were then able to rapidly enter other markets globally with ease.

Resource leveraging
This is, strategically generating publicity and leveraging it to gain market legitimacy. Some technology product inventors rely on this to a great extent in that they work hard to win prestigious prizes and awards in their product category that will take them to instant limelight. For example, iOmniscient, a Sydney-based small, high-tech company that invented cutting-edge artificial intelligence-based security surveillance technology, had difficulty in convincing their potential buyers of the high-end quality of their technology. As the owner Manager Dr. Rustom Kanga told the writer: “In 2002, when we first went to that trade show, we were really a very small player. At that time we had to stand in the corridors and drag people into our stall and give them our product brochures. However, in 2004, when we won the best global security product award, within a year we were considered the best and after that it really took off.” Today, this technology provides security to the iconic Sydney harbour bridge.

Seeking conformity to established norms
We can see a variety of EM strategies here. At the simplest end, it may be aligning the firm’s website to the targeted market. For example, Battlefield Sports, a young Australian laser-gun gaming company that was seeking to penetrate to the American teenager market, had its website in Americanized English and all the pricing was in US dollars. Other strategies; choosing to exhibit in a premier trade show to match the firm’s expected and intended positioning strategy; gaining ISO9000 certification for quality assurance; NOJA Electrical Switchgear the young Australian electrical switch-gear exporter gaining KEMA certification, the Netherland-based global standards authority for testing and certification for the electricity industry. In a somewhat complex situation, iOmniscient security surveillance systems work with cameras but as they didn’t have expertise of leaders such as Sony and Cannon in camera technology, they made their systems to be compatible with reputed camera brands in the market. This gave the buyers the option of buying cameras of their choice.

Departing from established rules of competition
What comes to my mind here is the highly successful Sri Lankan tea exporter, Imperial Tea Exporters. In early 1990s, as a start-up tea company, it was eying the international market. Its biggest strength was the expertise of the tea industry and its overseas network of friends. The rule of the game at that time was to compete on pricing - when an exporter quoted a price, there were many others willing to underquote. Most of the local exporters were supplying bulk tea for international brands and the buyers looked for lowest price-bidders as in commodity trading. The company decided that they won’t survive that way as they were not financial strong, like many other start-ups.
The opening up of the former Soviet Union (CIS) countries provided a great, yet high-risk opportunity. Many established exporters were not willing to go there as there were no established buyers though the market was huge. The management team extensively travelled in the CIS countries to gain deeper insights about the market. What they found was -- there were no established brands - after 70 years of state control, people didn’t know about brands. As Managing Director Jayantha Karunaratne reflects, “We offered them a brand along with quality and they realized something different”. This pioneering advantage gave them a strong foothold and subsequent expansion to many CIS markets. It took another couple of years for the established companies such as Lipton to come in. The company was later able to leverage its brand to new products and enter Middle-Eastern markets as well as markets outside the CIS region such as the US and Europe through the expatriate Russians, who introduced the Imperial brand to others.
In summing up, considering the important resource access that can be provided by gaining market legitimacy it is of paramount importance for new ventures to work hard on gaining legitimacy for their products and services. The writer believes, within the limits of this article, the entrepreneurial marketing strategies discussed above would provide some food for thought to young firms to advance their growth strategies.

(Professor Jay Weerawardena is the Associate Professor of Strategic Marketing at UQ Business School, University of Queensland. He can be contacted via [email protected])

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Gaining market legitimacy for young firm: Role of ‘entrepreneurial marketing’ strategies

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