Effect of Digital Marketing on the Performance of MSMES in Kenya

Kimathi Doreen Kawira, Prof. Elegwa Mukulu & Prof. Romanus

Odhiambo

ISSN: 2617-359X
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Effect of Digital Marketing on the Performance of MSMES
in Kenya

1*
Kimathi Doreen Kawira, 2Prof. Elegwa Mukulu & 3Prof. Romanus Odhiambo

1
Post Graduate Student: Jomo Kenyatta University of Agriculture and Technology
2
Lecturer: Jomo Kenyatta University of Agriculture and Technology
3
Lecturer: Jomo Kenyatta University of Agriculture and Technology

*Corresponding Author’s Email: [Link]@[Link]

How to cite this article: Kawira, K.D., Mukulu, E. & Odhiambo, R. (2019), Effect of Digital
Marketing on the Performance of MSMES in Kenya, Journal of Marketing &Communication Vol
2(1) pp. 1-23.

Abstract
The main objective of the study was to examine the effect of digital marketing on the
performance of MSMEs in Kenya. The study was guided by positivism research philosophy. It
utilized a descriptive survey design. The study population included 8,526 licensed MSMEs in
Tharaka-Nithi County. Stratified sampling and random sampling techniques were employed to
arrive at the study sample. Data was collected using questionnaires. Quantitative data was
analyzed using both the descriptive and inferential statistics. The descriptive statistics included
frequency distributions, mean and measures of dispersion while the inferential statistics were t-
test, multiple regression analysis, Karl-Pearson correlation coefficient and F-test. The findings of
this study revealed that digital marketing accounted for 38.8% of the variation in performance of
MSMEs. The study further showed a strong positive correlation between digital marketing and
performance of MSMEs. The descriptive findings on digital marketing and performance of
MSMEs ascertained that a majority of MSME’s owners and managers that utilized digital
marketing perceived the performance of their firms to be growing. The bivariate regression
findings further revealed that digital marketing had a significant positive effect on the
performance of MSMEs. This study recommends that owners/managers of MSMEs in Kenya
should embrace digital marketing as a strategy towards improved performance. Embedded on the
high mobile phone penetration and improved internet connectivity in Kenya, coupled with
vibrant and easy to use social media platforms, entrepreneurs in Kenya should position such
tools for marketing purposes.
Key Words: Digital Marketing, Performance, MSMEs, Tharaka-Nithi County and Kenya

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1.1 Introduction
Micro, small and medium enterprises (MSMEs) play crucial roles in the economic well-being of
a nation. They create diversified sources of national income, improves a nation’s competitiveness
and promotes economic development leading to flexibility and resilience of economies.
Additionally, MSMEs play a pivotal role of improving social sectors through stimulating large
scale employment, development of indigenous skills and technology, promoting entrepreneurship
and innovativeness and building an industrial base at different scales (Kormawa, Wohlmuth &
Devlin, 2011;Dzisi & Ofosu, 2014; Anyanga & Nyamita,2016; KNBS,2016; Miles, Lehman &
Fillis, 2017).

Globally, their catalytic roles have been demonstrated in many countries as the biggest
contributors to the gross domestic product. In countries like Japan and China, 60% of GDP
comes from small and medium enterprises (SMEs). In the USA, that percentage goes up to 65%.
In UAE, SMEs generates 52% of GDP. In countries with a lower income per capita, SMEs have
a higher impact on the employment level of about 78% compared to countries with a larger
income where the percentage goes down to 59% (The Steering group, 2011).

Regionally, SMEs are estimated to comprise over 90% of African business operations and
contributing to over 50% of African employment and GDP (Chodokufa, 2009). In Ghana for
instance, the sector accounts for about 70% of industrial employment and well over 50% of the
country’s GDP (Dzisi & Ofusu, 2014). In Nigeria, the importance and performance contributions
of Small and medium scale business as a creator of employment is widely recognized. In 2002,
98% of all businesses in the manufacturing sector were SMEs, providing 76% of the workforce
and 48% of all industrial output in terms of value added (Eniola & Entebang, 2015). In South
Africa, SMEs are estimated to contribute 56% of private sector employment and 36% of GDP
(Neneh & Zyl, 2012).

In Kenya, this sector is currently estimated to be employing 14.9 million people. The value of the
MSME’s output is estimated at Ksh 3,369.1 billion against a national output of Ksh 9,971.4
billion representing a contribution of 33.8% to GDP in 2015. In regard to gross value added, the
MSME are estimated to have contributed 1,613.0 billion compared to Ksh 5,668.2 billion for the
whole economy (KNBS, 2016). Additionally, the MSME sector is not only a provider of goods
and services but also a driver in promoting competition and innovation while enhancing the
enterprise culture which is vital for economic development, industrialization and modernization
(KIPPRA, 2013; RoK, 2015). Furthermore, in Kenya, it is now widely recognized that the
promotion of the performance of MSME sector is a viable and dynamic strategy for achieving
national goals, including employment creation, poverty alleviation and balanced development
across sectors and sub-sectors. According to Kiveu (2013), the SME sector in Kenya is critical
and strategic in attaining vision 2030 and is central in national strategies for stimulating
economic activity, reducing unemployment and poverty. KNBS (2016) underscored the
important roles that MSMEs play in Kenya’s development process, particularly in the context of
generating employment and income opportunities for majority of the people. Indeed, the MSME
sector provides employment for substantially more people than does the formal sector.

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1.2 Statement of the Problem
Despite their fundamental roles, MSMEs in Kenya continue to suffer various setbacks of slowed
growth and performance catapulted by unfavourable environmental conditions with an estimated
70% folding up by the third year of operation (WB, 2015). Such conditions include but not
limited to competition, rapid technological changes, market liberalization, poor access to markets
and capital (Kivevu, 2013; Mwangi & Ngugi, 2014). Additionally, MSMEs are constantly
bedeviled by lack of or ineffective marketing with the 2016 micro, small and medium enterprise
survey showing that among the licensed businesses, micro (58.3%), small (35.6%) and medium
(33.5%) sized establishments do not market or advertise their products/services (KNBS,2016). In
the foregoing, MSMEs must continuously seek out for new opportunities that enhance their
competitiveness in the highly dynamic market place for superior performance and sustainability.
Digital marketing has been touted before as a cardinal strategy towards enhanced firm
competitiveness and hence performance due to its accessibility, ease of use and ability to reach a
large target audience fast.

Past studies on the on the role marketing on the performance of business enterprises focused on
the 4Ps of marketing (Janet & Ngugi, 2014), ignoring the forms of marketing adopted by such
enterprises. Other studies (Njau & Karugu, 2014; Njau & Njuga, 2015) focused on single
industry or variables thus affecting the generalizability of the findings of such studies to other
such MSMEs. Further, there has been limited research among the Kenyan MSMEs and more
specifically within the rural context that has managed to address the effect of digital marketing
on the performance of MSMEs. This study aimed to fill this missing knowledge gap by
examining the effect of digital marketing on performance of MSMEs in Kenya.

1.3 Objective of the Study

The objective of the study was to examine the effect of digital marketing on the performance of
MSMEs in Kenya.

2.0 Theoretical Review

This study was guided by the Dynamic Capabilities Theory. The theory relates to how business
organizations adapt and create heterogeneous resource positions in dynamic operating
environments. According to its proponents, current economies present more challenges than ever
to efficient and effective management due to hypercompetitive environments characterized by
major discrete environmental shifts in competitive, technological, social, and regulatory
domains. Failure to address these major environmental changes can negatively affect firm’s
performance. Teece et al. (1997) proposed the dynamic capabilities approach as an extension of
the resource based view (RBV) of the firm by Barney (1986; 1991). While the RBV tends to
explain the conditions under which firms may achieve a sustained competitive advantage based
on their bundles of resources and capabilities, it is however considered to be essentially static in
nature and thus inadequate in explaining firms’ competitive advantage in rapidly changing
environments.

They categorized the nature of the concept as being ability (capacity), thus suggested a special
kind of capability. Second, they specified the desired end (the role) of this special capability as

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being to integrate, build, and reconfigure internal and external competences. Third, they focused
on a particular type of external context, namely, rapidly changing environments. This was a
natural consequence of their view of dynamic capabilities as an extension of the RBV toward
regimes of rapid change, for which they undertook a more entrepreneurial perspective. Fourth,
they assumed that dynamic capabilities are typically built rather than bought and that their
creation and their evolution are embedded in organizational processes that are shaped by firms’
asset positions and the evolutionary paths they have adopted in the past. Fifth, they emphasized
that dynamic capabilities are heterogeneous across firms and finally, their approach explicitly
stated sustained competitive advantage as a direct outcome of dynamic capabilities.

Thus, according to Teece (2007), dynamic capabilities can be disaggregated into the capacity to
establish, develop and exploit three distinct capabilities necessary to maintaining a competitive
advantage in high velocity business environments. These include the ability (a) to sense and
shape opportunities and threats, (b) to seize opportunities, and (c) to maintain competitiveness
through enhancing, combining, protecting, and, when necessary, reconfiguring the business
enterprise’s intangible and tangible assets. Therefore, the dynamic capabilities theory articulates
the current business operating environment characterized by hyper-competition. Such an
environment rarely provides an equilibrium. This demands for continuous customer engagement
as co-creators and development of key capabilities that contribute to a continuous superior
performance. Based on this theoretical background, it is hypothesized that:
Ha: Digital marketing has a significant positive effect on performance of MSMEs
in Kenya.

2.1 Conceptual Framework

In the recent times, the world has witnessed a rise in digital marketing buoyed by the explosion
of information communication and technology (ICT). Digital marketing is a marketing strategy
involving the deployment technology based tools such as the Internet (email, search engines and
electronic commerce), mobile phones and social media platforms. Internet marketing aims to
inform, converse, promote and sell products and services over the Internet (Kiveu & Ofafa,
2013; Njau & Karugu, 2014). It involves email marketing, search engines, online markets and
online blogs with the aim to reaching out to existing and potential customers.

Mobile phone marketing involves the utilization of mobile telephony through short messages and
dial ups to reach and service clientele. Mobile phones emerge as the preferred ICT tool to
MSMEs due to affordability, ease of use, and reliable provider networks. In Kenya, most of the
MSMEs owners own mobile phones with subscription reaching 38.3 million in March, 2016 and
mobile penetration at 89.2% (CAK, 2016). They also offer various functionalities that can
enhance marketing including communication, enabling market transactions, product promotion,
customer relationship, market research and other Internet enabled services. Social media
marketing basically means promoting a company through different networking sites and popular
media channels such as twitter, linkedIn, facebook, Instagram and whatsup (Thompson,Williama
& Thomas 2013). For this study, digital marketing tools were operationalized to include mobile
phone, social media sites and Internet. It was hypothesized that these tools significantly and
positively affect the

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performance of MSMEs in Kenya in terms of customer base, sales and profitability. Figure 1
shows the conceptual framework.

Digital Marketing

Mobile Phone Marketing Performance of MSMEs

Customer Base
Ha Sales
Social Media Marketing Profitability

Internet Marketing
Figure 1: Conceptual Framework

2.2 Empirical Review

Njau and Karugu (2014) carried out a study titled; Influence of e-marketing on the performance
of small and medium enterprises in Kenya: Survey of small and medium enterprises in the
manufacturing industry in Kenya. The specific objectives of their study included determining
how search engine marketing, email marketing, blog marketing, and online advertising, each
influence the performance of SMEs in Kenya. The study utilized survey research design in
collecting data from respondents and simple random sampling procedure to select the sample.
The target population was 500 hundred SMEs in the manufacturing industry in Kenya. The
findings showed a significant influence of search engine marketing, email marketing, blog
marketing, and online advertising on business performance. The study also revealed that SMEs
in Kenya who are keen on adopting e-marketing have achieved above average business
performance as compared to their counterparts that failed to adopt the e-marketing strategy.

Njau and Njuga (2015) undertook a study titled; Mobile phones usage in micro enterprises in
Tanzania and its impact on their performance: A case of micro enterprises in Moshi municipality,
Tanzania. A descriptive research design was employed whereby a total of 70 micro entrepreneurs
belonging to secondhand clothing, shoes and handbags, food vendors and saloon owners were
randomly selected. Questionnaire and interview techniques were used as research tools in
gathering quantitative and qualitative data. Findings showed that mobile phone services
contribute positively to micro enterprises business performance with results showing that 87% of
the respondents used mobile phones services mainly for business purposes. Furthermore,
findings revealed that the more the use of mobile phone services by micro entrepreneurs the
more the business succeeds. This is made possible by the virtue that mobile phones can be used
anywhere

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and anytime when need arises, it is more convenient, and is immediate if employed in business
communication.

In addition, mobile phone reduces costs and saves time for micro entrepreneurs with limited
economic resources. Mobile phones play a major role in maintaining customer relations through
frequent communications and prompt problems solving, hence retaining their customers. Again,
mobile phones have an ability to share business information with other micro entrepreneurs and
provide basic information about products price, availability of products and services to
customers (information dissemination). The study recommended that there is a need to have an
awareness campaign on the uses of mobile phones in business activities at grassroots level.

Oztamura and Karakadilar (2014) explored the role of social media for SMEs as a new marketing
strategy tool for the firm performance perspective. They observed that social-media is not only a
communication tool for amusement, but it is also an important part of marketing strategies in
business life. The researchers employed case study on four companies chosen randomly in USA
and Turkey. They targeted the social media accounts of the selected companies between January
and February 2014. They evaluated some aspects such as the number of likes, the frequency of
update, richness and relativeness of the content, interaction of engagement, the use of language
and punctuation or spelling mistakes. These were important points because especially SMEs may
sustain their position and create loyal customers through the effective use of stated factors in
social network marketing. The study analyzed the Facebook and Twitter accounts of randomly
selected fashion retail chains and healthy bakery retail chains SMEs from USA and Turkey in
order to make a comparison of each two companies which were performing in the same industry.

The research findings showed that American companies are more prone to apply the required
strategies when compared to social media use of Turkish companies. Dynamic industries such as
fashion-retail chains strive more than conventional industries such as bakery-retail chains on
social media medium which in turn affects their amount of customer followers. The main
suggestion of this research for SMEs was that they should spend time to create rich contents on
their social media accounts to attract their target customers’ attention. In addition, they should be
more sincere while communicating with their target customers and should prefer to communicate
in a more friendly style and to respond in a quick manner to all communication attempts of their
customers. This enhances customer followership, retention and hence superior performance.

3.0 Methodology
The study was guided by positivism research philosophy. It utilized a descriptive survey design.
This design was considered relevant for this study for it was seeking to depict the participants in
an accurate way by finding out the ‘what is ‘the effect of digital marketing on the performance of
MSMEs in Kenya. The study also drew quantitative data for analysis and interpretation.
Descriptive survey design is also ideal when using a questionnaire for data collection. This is
because they contain predetermined categories of responses that respondents can select from.
This allows for statistically inferable data. The study population included 8,526 licensed MSMEs
in Tharaka-Nithi County. Stratified sampling and random sampling techniques were employed to
arrive at the study sample. The sample size was adopted from Krejcie and Morgan (1970) sample
size table developed using the sample size formula for a finite population;

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S = χ2 NP (1−P) ÷d 2 (N −1) + χ2P (1−P).
S = required sample size, N = the population size.
χ2= the table value of chi-square for 1 degree of freedom at the desired confidence level
(3.841).
P = the population proportion (assumed to be .50 since this would provide the maximum
sample size).
d = the degree of accuracy expressed as a proportion (.05).
Thus, the required sample size (S) for this study was 368 MSMEs owners/managers based on the
provided population size of N=8526, at confidence level of 95% and precision level of 5% with a
response distribution of 50% (p and q). Data was collected using questionnaires. The study
adopted the hand delivery and collection method. Aliyu and Rosli (2014) opines that the hand
delivery and collection method saves time, ensure clarification of doubts and misunderstood
concepts and produce a high response rate. Further, it is considered appropriate due to its
outstanding benefits of the entire completed questionnaire can be collected within a short period
of time, one can be on hand to give additional explanation on items that may require clarification
by the respondents and lastly it creates an opportunity to persuade the respondents to take part in
the survey and give their sincere opinions where resistance may be noticed in line with the
submissions of Sekaran and Bougie (2010). To ensure reliability of the study, a pilot study was
carried with 37 questionnaires followed by the computation of the Chronbach’s alpha coefficient
for each of the variables. The proposed pilot test falls within the rule of thumb as proposed by
Mugenda and Mugenda (2003) that 10% of the sample should constitute the pilot test. For content
validity, the researcher solicited for expert opinion from the university supervisors, peers and
professionals in the industry.

3.1 Data processing and analysis

For completeness and consistency, the collected data was processed via editing and coding
before presenting same for analysis. Qualitative data was analyzed using content analysis and
interpreted through identification of main themes.
Quantitative data was analyzed using both the descriptive and inferential statistics. The
descriptive statistics included frequency distributions mean and measures of dispersion while the
inferential statistics were t-test, multiple regression analysis, Karl-Pearson correlation coefficient
and F-test.

3.2 Statistical Model and Hypothesis Testing

To test the independent variable against the dependent variable (performance of MSMEs), t-test
was used. For majority of business and management studies, researchers are satisfied to estimate
the population‘s characteristics to be within plus or minus 3% to 5% of its true values (Saunders
et al., 2012). Accordingly, for this study, the desired level of precision was +/– 5% and a
confidence level of 95%. The decision level was, reject null hypothesis if P<0.05 and fail to
reject if P>0.05. Karl Person correlation coefficient was used to test the level and direction of
correlation between the independent variable and dependent variable. A bivariate regression
analysis model was applied to determine the effect of digital marketing (independent variable) on
the performance of MSMEs (dependent variable) in Kenya. The regression model was
conceptualized as follows;-

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Y = β0 + β1X1 + ε

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Where: Y =MSMEs
Performance X1 =
Digital marketing β0 =
Constant
β1 = Regression coefficient
ε = Error term

3.3 Operationalization and Measurement of Variables

This study used perceptual measures of MSMEs’ performance, with the conceptualized
constructs being perceived increase in profitability, sales volume and customer base. This agrees
with other numerous previous studies (Brouthers, Nakos, Hadjimarcou, & Brouthers, 2009;
Kumar, & Singh, 2014; Mpunga, 2016). Perceptual measures are considered appropriate when,
firms are reluctant or unable to give “hard” financial data and when objective financial data is not
available for all the elements under study and or variations exist in accounting practices across
the elements hindering the reconciliation of differences (Nauwelaerts, 2016). This correlates with
a study by Gichuki et al. (2014) which ascertained that lack of proper records keeping is a key
challenge facing MSMEs in Kenya. The independent variable was the digital marketing tools
operationalized as mobile phones, social media and internet marketing.

4.0 Research Findings

4.1 Reliability and Validity Test Results Analysis
Before conducting any analysis, the data was measured for internal consistency (reliability) using
Cronbach’s alpha. The Cronbach’s alpha is used when there are multiple Likert questions in a
survey or questionnaire is used as the data collection tool as was the case for this study. Based on
the reliability statistics, it was evident that the survey questions had excellent internal
consistency for all the Likert questions with α > 0.7. Results are presented in Table 1.

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Table 1: Reliability test for Digital Marketing

Code Corrected
Item-Total Cronbach's Alpha
Correlation if Item Deleted
DMS1 Adopting internet marketing allows firms to
.861 .975
increase their sales volumes and profitability
DMS2 Use of internet marketing strategies enhances a
.924 .973
firm’s competitive advantage
DMS3 Marketing through the internet greatly promotes
the ability of business firms to attract and .885 .974
retain customers
DMS4 A business firm can leverage the high mobile
phone penetration in Kenya to significantly .895 .974
grow
their sales volumes
DMS5 Mobile phones are key in promoting market
.863 .975
penetration
DMS6 Many businesses have been able to increase their
profitability through by marketing using .886 .974
the mobile phone
DMS7 It is possible to attract and retain customers by
.867 .974
effectively utilizing the social media platforms
DM8S Those firm that leverage the social media
platforms such as facebook and whatsup as
.891 .974
marketing tools are more likely to achieve
higher
sales volumes
DMS9 Social media is an effective way for business
.892 .974
firms to grow their profitability
DMS10 Digital marketing strategies overly positively
and significantly increases clients’ base, sales
.894 .974
volumes, profitability and hence firm
performance

4.2 Demographic Information

The highest number of respondents, 47.4% were from Meru South Sub County, followed by
Maara 38.7%, Tharaka South 9.6% and Tharaka North 4.3%. These results tally with Tharaka-
Nithi County Integrated Development Plan (2013) where the sub counties of Meru South and
Maara are classified as the largest commercial sub-counties. Chuka town in Meru South is the
largest with a projected population of 50,203 residents in 2017 followed by Chogoria town in
Maara with a projected population of 36,521 in 2017. Marimanti, located in Tharaka South is the
only urban centre in Tharaka with a projected population of 9,857 in 2017. All these towns serve
as Sub County headquarters and this has immensely contributed to their fast growth. 53.3%
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of the

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respondents were female while the male counterparts accounted for 46.7%. Approximately
15.2% of the respondents were between 18 and 25 years, 39.1% were between 26 and 35, 25.5%
were aged between 36 and 45 while 20.2% were above 45 years. Further, 93.4% had attained
some level of formal education. This information is summarized in Table 2.
Table 2: Descriptive Statistics on Respondents’ Demographic Information
Main Factor Factor Level Frequency Percent
Sub-County Chuka 143 47.4
Maara 117 38.7
Tharaka -South 29 9.6
Tharaka-North 13 4.3
Gender Male 141 46.7
Female 161 53.3
Age Bracket 18 to 25 years 46 15.2
26 to 35 years 118 39.1
36 to 45 years 77 25.5
Above 45 years 61 20.2
Marital Status Single 93 30.8
Married 160 53.0
Divorced 16 5.3
Widowed 33 10.9
Level of Education None 20 6.6
Primary 65 21.5
Secondary 108 35.8
College/Tertiary 59 19.5
University 50 16.6

4.3 Business Background Information

The business background information revealed that most of the respondents (42.4%) were
engaged in wholesale/retail trade, 23.8% were in the service industry, 18.5% were in the
restaurant/hotel business, 9.9% were involved in craft, 4.3% in education/training and the
remaining 1% focused on agricultural activities (Figure 2). The results resonate with the national
survey, KNBS (2016), which postulated that a majority of the Kenyan MSMEs are engaged in
the wholesale/retail trade. Additionally, Tharaka-Nithi is a rural County and thus it is evident that
agriculture is still practiced for subsistence purposes other than as enterprise.

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Type of Enterprise
50% 42.40%
40%
30% 23.80%
20% 18.50%
9.90%
10% 4.30%
1%
0%

Figure 2: Type of Enterprise

Further, most of the participants (57%) were sole proprietors, while partnerships accounted for
38.1% of the sample population and only 5% claimed to have limited companies as depicted by
Figure 3.

Business Legal Form

60% 57%
50%
40%
30% 38.10%
20%
10%
0%

5%

Sole proprietorshipJoint/PartnershipLimited Company

Figure 3: Business legal Form

Table 3 provides a detailed examination of the business background information. From the
results, it is evident that most of the respondents had their business in operation between 1 and 5
years (53%), 28.1% for over 5 years and 18.9% for less than 1 year. The largest proportion of
participants (70.2%) begun the business themselves while the remaining 29.8% begun with other
employees. As at the time of the study, almost half of the participants (57%) worked alone in
their business and 43% had other employees in the business, an indicator of business growth.
Most of the daily sales of the sampled businesses ranged below Ksh 10,000 (40.1%), 30.5%
between 10,000 and 20,000, 12.3% between 20,000 and 30,000 and 4.3% above 50,000. Majority
of the businesses had a level of profitability below KSh 10,000 (67.2%) while very few made it
above the KSh 50,000 mark (1.3%). Finally, most of the firms could be said to be experiencing a
growth spurt as shown

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by 70.9% of the respondents, 15.9% were breaking even and the remaining 13.2% perceived that
the performance of their enterprises was declining.

Table 3: Descriptive Statistics on Businesses’ background Information

Main Factor Factor Level Frequency Percent
Years in Operation Less than 1 year 57 18.9
1-5 years 160 53.0
Over 5 years 85 28.1
Other Employees
at Commencement Myself only 212 70.2
Other 90 29.8
Current Other Employees Myself only 172 57.0
Other 130 43.0
Estimated Daily Sales (Ksh) Below 10,000 121 40.1
10,001-20,000 92 30.5
20,001-30,000 37 12.3
30,001-40,000 18 6.0
40,001-50,000 21 7.0
Above 50,000 13 4.3
Estimated Daily profits (Ksh) Below 10,000 203 67.2
10,001-20,000 52 17.2
20,001-30,000 18 6.0
30,001-40,000 15 5.0
40,001-50,000 10 3.3
Above 50,000 4 1.3
Perceived Firm performance
Growing 214 70.9
over the last 3 years
Breaking-even 48 15.9
Declining 40 13.2

4.4 Statistical Tests

4.4.1 Linearity Test

In this study, the linearity test was done both graphically by use of scatter plots and statistically
by use of ANOVA output tables. As illustrated in Table 4, the linearity test results for digital
marketing were significant F values (F=167.267, P=0.000<0.05). This means that there was a
linear relationship between digital marketing and performance. The test for deviation from
linearity (nonlinear) for digital marketing, was insignificant Fvalues (F=0.776,P=0.940>0.05) an
indication that there were no nonlinear relationships in addition to the linear components.

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Table 4: ANOVA Results of the Linearity Test
Sum of Mean
df F Sig.
Squares Square
(Combined) 218.864 163 1.343 1.797 0.000
Between Linearity 124.947 1 124.947 167.267 0.000
Performance * Groups Deviation
Digital from 93.917 162 0.58 0.776 0.940
Marketing Linearity
Within Groups 103.085 138 0.747
Total 321.949 301

Further, a visual examination of the scatter plots as shown in Figure 4 suggests a positive linear
relationship between digital marketing and performance of the MSMEs. This implied that the
higher the relationship marketing the higher the performance of the MSMEs. Therefore, the level
of influence of the hypothesized digital marketing could statistically be determined by
performing a linear regression analysis.

Figure 4: Linearity Test on Digital Marketing

4.5 Digital Marketing and Performance of MSMEs

The study sought to determine of the total respondents, how many specifically used digital
marketing in their enterprises. From the results in Table 5, it is evident that more MSME owners/
managers at 59.27 % utilized digital marketing as compared to 40.73% who did not.

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Table 5: Frequency Distribution on Respondents’ Use of Digital Marketing
Do you deploy digital
marketing in your
business?
Yes % No Total
Respondents
179 59.27% 123 302

Further, it was evident from the results (Table 6) that the mobile phone was used more as a
digital marketing tool at 49.72% as compared to websites and social media platforms such as
whatsup, facebook and Emails. This can be attributed to the high mobile phone penetration in
Kenya including to the rural areas. According to CAK (2016), Kenyans continue to embrace use
of mobile services with the number of mobile subscribers increasing to 40.3 million, representing
a penetration rate of 88.7 percent. The results of this study agrees with findings by Kiveu and
Ofafa (2014) who while studying the role of ICT in enhancing market access in Kenyan SMEs,
found out that the mobile phone is the most used ICT tool for it was rated most significantly in
terms of desirability, accessibility and affordability. They established that Mobile phones
emerged as the preferred ICT tool to SMEs due to affordability, ease of use, and a reliable
network. They ascertained that more than 95% of SMEs owners/managers in Kenya owned
mobile phones with subscription reaching 30.7 million in April, 2013.
Table 6: Frequently Used Digital Marketing Tools
Do you deploy digital
Factor marketing in your
business?
Yes %
Internet
38 21.23%
(Website)
Please indicate some of the digital marketing Whatsup 41 22.91%
strategies adopted by your business to Facebook 5 2.79%
market its products /Services Mobile
89 49.72%
phone
Email 6 3.35%
Total 179 100.00%
On confirming the perceived effect of digital marketing on the performance of their enterprises
in the last three years, 41.39% of the total respondents who adopted digital marketing perceived
that their firms were growing against 8.61% and 9.27% who opined that their firms were either
just breaking even or declining respectively as presented in Table 7.
Table 7: Use of Digital marketing and Perceived Firm Performance

The results agree with the findings of Waithaka et al. (2014) who established that social media or
internet marketing affect the growth of small businesses and that the more business used the
social media, the more they were able to reach more customers. Leong et al. (2012) studying the
factors affecting the performance of SMEs in Malaysia established that application of IT had a
significant positive relationship with increased performance of SMEs in Malaysia. They
argued that the
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Do you deploy digital marketing
Factor
strategies to your business?
Yes % No Total
Growing 125 41.39% 89 214
Which of the status below best
describes your firm performance in Breaking - 26 8.61% 22 48
the last three(3) years even
Declining 28 9.27% 12 40
Total 179 59.27% 123 302
adoption of ICT tools assists organizations in storing information as well as communicating with
customer, suppliers and other business partners who facilitated business transactions. As a result,
this led to better performance.

Further, the respondents were asked to evaluate the effect digital marketing in relation to its
effect on the performance of their firms using statements that were provided making use of the
scale: 1=SD-Strongly Disagree, 2=D-Disagree, 3=N-Neutral, 4=A-Agree and 5=SA-Strongly
Agree. Their responses were as shown in Table 8. All the resulting means of above 4.0 signified
low variability in respondents’ opinion in all the variables measuring digital marketing and
performance of MSMEs. The resulting standard deviations of less than half the means
ascertained that the differences of responses given was insignificant. The overall rating had a
mean of 4.16 and standard deviation of 1.503 which indicates that majority of the respondents
agreed or strongly agreed with the statements relating to effect of digital marketing on the
performance of their firms.

According to the results of this study, 83.0% of the respondents felt that deploying internet
marketing strategies grew firms’ profitability and sales volume while 74.0% conjectured that
such strategies contributed towards customer attraction and retention. Moreover, 70% opined that
Internet marketing enhances firms’ competitive advantage. Likewise, the respondents agreed that
it is possible to leverage the high mobile phone penetration rate in Kenya to grow sales volume
(81.0%), profitability (70.0%) and customer base (74.0%). Similarly, the results showed that
utilizing social media platforms to market firms’ products and services would improve their sales
(70.0%), profitability (69.0%) and clients’ retention (71.0%). Overall, 71.0% of the respondents
agreed that adoption of digital marketing strategies significantly increases clients’ base, sales
volumes, profitability and hence firm performance.

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Table 8: Digital Marketing and ce of MSMEs
Performan
SD D N A SA Std.
Code Digital Marketing Strategy Mean
(%) (%) (%) (%) (%) Deviation
DMS1 Adopting internet marketing allows
firms to increase their sales volumes 3 4 10 57 26 4.42 1.712
and profitability
DMS2 Use of internet marketing strategies
enhances a firm’s competitive 4 10 16 45 25 4.24 1.128
advantage
DMS3 Marketing through the internet
greatly promotes the ability of
11 6 9 51 23 4.09 1.590
business firms to attract and retain
customers
DMS4 A business firm can leverage the
high mobile phone penetration in
4 6 9 54 27 4.11 1.753
Kenya to significantly grow their
sales volumes
DMS5 Mobile phones are key in promoting
market penetration 8 8 10 44 30 4.19 1.459

DMS6 Many businesses have been able to

increase their profitability through
12 9 9 47 23 4.09 1.609
by marketing using the mobile
phone
DMS7 It is possible to attract and retain
customers by effectively utilizing 10 6 12 51 20 4.05 1.519
the social media platforms
DMS8 Those firm that leverage the social
media platforms such as facebook
and whatsup as marketing tools are 7 8 15 40 30 4.09 1.537
more likely to achieve higher sales
volumes
DMS9 Social media is an effective way for
business firms to grow their 12 9 9 29 40 4.16 1.575
profitability
DMS10 Digital marketing strategies overly
positively and significantly
increases clients’ base, sales 12 10 8 44 27 4.12 1.149
volumes, profitability and hence
firm performance

4.16 1.503
Overall

4.5.1 Factor Analysis on Digital Marketing

Factor analysis is a requisite step in multiple regression analysis as it is used to create composite
scores for each variable under study. Principal composite analysis was carried out on the data to
describe variability among the observed and check for any correlated elements with the aim of

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reducing data that was found redundant. Sample adequacy was determined by use of Kaiser-
Meyer-Olkin Measure of sampling adequacy (KMO) per every independent variable with a
decision level accept if KMO >0.7(Cerny & Kaiser,1977).

Factor analysis carried out on digital marketing had all the indicators scoring factor loadings of
more than 0.5 (Table 9) and were therefore retained for further analysis. The sample was also
adequate since Kaiser-Meyer-Olkin measure of sampling adequacy (KMO) attained was 0.959,
above the threshold of 0.7. The digital marketing variable factor constructed was able to explain
82.540 % >70% of the total variance in the digital marketing variable hence the variables
exhaustively explained the variation in the factor.

Table 9: Factor Analysis on Digital Marketing

Factor
Digital Marketing Strategy Loading
Adopting internet marketing allows firms to increase their sales volumes and 0.888
profitability
Use of internet marketing strategies enhances a firm’s competitive advantage 0.940
Marketing through the internet greatly promotes the ability of business firms to 0.907
attract and retain customers
A business firm can leverage the high mobile phone penetration in Kenya to 0.916
significantly grow their sales volumes
Mobile phones are key in promoting market penetration 0.889
Many businesses have been able to increase their profitability through by 0.909
marketing using the mobile phone
It is possible to attract and retain customers by effectively utilizing the social 0.893
media platforms
Those firm that leverage the social media platforms such as facebook and whatsup 0.912
as marketing tools are more likely to achieve higher sales volumes
Social media is an effective way for business firms to grow their profitability 0.914
Digital marketing strategies overly positively and significantly increases clients’ 0.916
base, sales volumes, profitability and hence firm performance
KMO=0.959 ;Bartletts p<0.05; Total variance extracted=82.540%
4.5.2 Hypothesis Testing
Pearson product moment correlation coefficient (r) was used to aid in establishing correlation
between digital marketing and performance of MSMEs. Correlation coefficient shows the
magnitude and direction of the relationship between study variables. The resulting correlation
coefficient of 0.623 (Table 10) implied that that there is a moderately strong positive correlation
between digital marketing and performance of MSMEs. The correlation was also significant at a
p-value of 0.000, α=0.05. This inferred that an increase in digital marketing led to an increase in
the performance of an enterprise.

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Table 10: Pearson’s correlation Coefficient between Digital Marketing and Performance of
MSMEs in Kenya
Digital
Performance Marketing
Performance Pearson Correlation 1.000 .623*
Sig. (2-tailed) .000
N 302 302
Digital Marketing Pearson Correlation .623* 1.000
Sig. (2-tailed) .000
N 302 302
*Correlation is significant at the 0.05 level (2-tailed).
Moreover, the generated R square value of 0.388 as presented in Table 11 depicted that digital
marketing accounted for 38.8% of the variation in performance leaving 61.2% unexplained (error
term). Thus, it can be concluded that digital marketing had moderate positive effect on
performance of MSMEs.

Table 11: Digital Marketing Model Summary

Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .623a .388 .386 .81035372
a. Predictors: (Constant), Digital Marketing

Further, the ANOVA test results in Table 12 showed a p-value of 0.000 which was less than
0.05. Thus, the model of digital marketing and performance of MSMEs was overally significant.

Table 12: ANOVA Regression Results between Digital Marketing and Performance
Model Sum of Squares df Mean Square F Sig.
1 Regression 124.947 1 124.947 190.273 .000b
Residual 197.002 300 .657
Total 321.949 301
a. Dependent Variable: Performance
b. Predictors: (Constant), Digital Marketing

The results as presented in Table 12 show that the regression weight for digital marketing was
positive and significant (β1= 0.612, p < .05, Sig 0.000) with the model summarized as
Y=0.227+0.612X1. Since β1 =0.612, it can be concluded that one unit increase in digital
marketing increased performance by 0.612 units other factors held constant. In addition, the p-
value at 0.000<0.05 signified that digital marketing individually had a significant positive effect
on performance of MSMEs in Kenya.

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Table 12: Coefficients of Digital Marketing and Performance of MSMEs

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) .227 .048 4.735 .000
Digital Marketing .612 .044 .623 13.794 .000
[Link] Variable :Performance

4.6 Discussion of Findings on the Effect of Digital Marketing on Performance of MSMES

The regression analysis on Table 12 revealed that digital marketing has a positive effect on the
performance of MSMEs in Kenya. For every unit increase in digital marketing, performance
increases by 0.612 units other factors held constant. The Pearson product moment correlation
coefficient also established a positive correlation between digital marketing and performance of
MSMEs (r = 0.623, p-value = 0.000) at 0.05 level of significance. Thus, the study failed to reject
the statistical hypothesis, Ha1: Digital marketing has a significant positive effect on performance
of MSMEs in Kenya.

The results of this study are consistent with findings of other previous studies that investigated
the role of various digital marketing strategies on firm performance. A study by Njau and Karugu
(2014), examining the influence of e-marketing on the performance of small and medium
enterprises in Kenya found a significant positive influence of search engine marketing, email
marketing, blog marketing, and online advertising on business performance. The study also
revealed that SMEs in Kenya who are keen on adopting e-marketing had achieved above average
business performance as compared to their counterparts that failed to adopt the e-marketing
strategy.

The study findings also concur with that Njau and Njuga (2015) who while studying Mobile
phones usage in micro enterprises in Tanzania, and its impact on their performance found out
that the more the use of mobile phone services by micro entrepreneurs, the more the business
succeeded. This was made possible by the virtue that mobile phones can be used anywhere and
anytime when need arises, it is more convenient, and is immediate if employed in business
communication.

The results also supports the work of Oztamur and Karakadilar (2015) who explored the role of
social media for SMEs as a new marketing strategy tool from a firm performance perspective,
and established that social media affects the amount of customer followers to SMES and also
provides a quick manner to respond to all communication attempts by their customers. This
enhances customer followership, retention and hence superior business performance. The results
are also consistent with findings of Leong et al. (2012) who while studying the factors affecting
the performance of SMEs in Malaysia established that application of IT had a significant positive
relationship with performance of SMEs.

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The findings of this study are in addition in agreement with dynamic capabilities theory as
articulated by Teece et al. (1997) who argued that current business environments present more
challenges than ever to efficient and effective management. This is due to hypercompetitive
environments characterized by major discrete environmental shifts in competitive, technological,
social and regulatory domains. Such an environment rarely provides equilibrium. This demand
for continuous customer engagement as co-creators and development of key capabilities that
contribute to a continuous superior performance. Thus, business enterprises that are able to
configure their capabilities towards adoption of the technological tools presented within the
highly dynamic operating environment are more likely to achieve superior performance as
compared to those who did not.

5.0 Summary, Conclusion and Recommendations

5.1 Summary of Findings
The findings of this study revealed that digital marketing accounted for 38.8% of the variation in
performance of MSMEs. The study further showed a strong positive correlation between digital
marketing and performance of MSMEs. The descriptive findings on digital marketing and
performance of MSMEs ascertained that a majority of MSME’s owners and managers that
utilized digital marketing perceived the performance of their firms to be growing. The bivariate
regression findings further revealed that digital marketing had a significant and positive effect on
the performance of MSMEs.
5.2 Conclusion
The study concluded that digital marketing yields superior performance for MSMEs. The digital
marketing tools of mobile phones, Internet and social media sites play significant roles in
attracting/reaching and retaining customers hence resulting to improved sales volumes and
profitability. Further, the digital marketing tools also avail an easily accessible and cheap means
through which entrepreneurs reach the targeted consumers as compared to other traditional and
equally expensive approaches such as print media. Consequently, MSMEs targeting to achieve
and sustain a competitive edge over their competitors for superior performance must endeavor to
adopt and deploy digital technology in their marketing functions.
5.3 Recommendation
This study recommends that owners/managers of MSMEs in Kenya should embrace digital
marketing as a strategy towards improved performance. Embedded on the high mobile phone
penetration and improved internet connectivity in Kenya, coupled with vibrant and easy to use
social media platforms, entrepreneurs in Kenya should position such tools for marketing
purposes.
5.4 Areas for Further Research
As described in the methodology section, this study only focused on Tharaka Nithi County.
However, there are many MSMEs in other counties in Kenya which could be facing similar
challenges like those faced by the MSMEs in Tharaka Nithi County. Therefore, future
researchers could focus on other Counties in Kenya.

Secondly, the study adopted cross-sectional research design approach which was limited to
point- in-time assessment. Therefore, future research could be conducted using longitudinal
research

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approach so as to identify the most effective digital marketing strategy in promoting the
performance of MSMEs in Kenya.

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