CHAPTER II

LITERATURE REVIEW

1.1 Theoretical Review

In this chapter the researcher will discuss the theories related to the problem.

Utilization of digital marketing on micro, small and medium enterprises (msmes) in

makassar city.

1.1.1 Digital Marketing

1. Definition of digital Marketing

Digital marketing has become an integral part of modern marketing strategies

where digital technologies are utilised to achieve business objectives, increase brand

visibility and expand market reach. This literature review will explain the key concepts

in digital marketing, the factors that influence the adoption and implementation of

digital marketing strategies, and its impact on business performance.

Khan & Siddiqui in their journal, cited by Purwana ES and colleagues,

explained that the concept of digital marketing comes from the internet and search

engines. Digital marketing includes all efforts to market products or services through

devices connected to the internet with various digital strategies and media. The goal is

to communicate with potential customers (Andi Gunawan Chakti, 2019). Diana Rapita

Sari (2016) also states that digital marketing is a marketing strategy that utilises

information technology that continues to grow.

Dave Chaffey (2015) states that digital marketing has a similar meaning to e-
marketing. Both involve the management and implementation of marketing using

electronic media, such as websites, emails, databases, television, and new innovations

such as blogs, feeds, podcasts, and social networks. The goal of digital marketing is to

promote products or services for profit, build and develop customer relationships, and

develop action plans that expand consumers' knowledge of the company, behaviour,

values, and brand loyalty. Digital marketing combines targeted communication with

online services that are tailored to specific individual or customer needs. In short,

digital marketing focuses on achieving marketing objectives through digital

technologies and media, especially the internet.

2. Komponen atau bentuk digital Marketing

The components / forms of digital marketing include the following

following:

1) Social Media

Social media is a general term for software and web-based services that allow

users to connect with each other online and connect in the form of social

interactions. The interaction can be in the form of text, audio, images, video,

and other social media separately or in any combination. The following are

examples of social media:

a) Instagram

Instagram is a photo and video sharing application that allows users to take

photos, record videos, apply digital filters, and share them to various social
 services including Instagram. This application has been widely used by

users from various aspects, one of which is as an advertising medium (Hu,

Manikonda, & Kambhamp, 2020)

b) Facebook

Facebook is a social service that has more than billions of active users that

can be shared whether they have common interests or not. Facebook allows

users to create personal profiles, add other users as friends, and exchange

messages, including automatic notifications when they update their profiles

(Statista, 2021).

c) TikTok

TikTok is a social media platform that allows users to create, share and

watch short videos that are usually accompanied by music. TikTok has

become popular especially among the younger generation and is widely

used for various purposes including entertainment, education, and

marketing. Users can use various effects and filters to enhance the visual

appeal of their videos. TikTok has become a powerful tool for businesses to

reach a wider audience and increase brand awareness through creative and

viral video content (Anderson, 2020).

2) Marketplace

A marketplace is an e-commerce platform that connects sellers and

buyers online. Some examples of marketplaces are:

 a) Shopee

Shopee is an e-commerce platform based in Singapore and owned by SEA

Group. Shopee provides a variety of products and services, making it easy

to buy and sell online.

b) Lazada

Lazada is an online shopping platform developed by Rocket Internet, a

technology incubator company from Germany. Lazada provides a variety

of products from various categories, making it easy for consumers to shop

online.

c) Tokopedia

Tokopedia is an e-commerce company known as an online store. Since its

founding in 2009, Tokopedia has grown into an influential unicorn in

Indonesia and Southeast Asia, providing a platform for individuals and

businesses to sell their products online.

3) Social Network

A social network is an online service that focuses on building social

relationships and reflects a social network or relationship between people with

similar interests. Examples of social network services include:

a) Gojek

Gojek is an Indonesia-based technology company that provides

 transport services by ojek. In addition, Gojek also offers a range of

other services such as food delivery and payment through mobile

applications.

b) Grab

Grab adalah platform layanan on-demand yang berbasis di

Singapura. Awalnya sebagai layanan transportasi, Grab kini juga

menyediakan layanan pengiriman makanan dan pembayaran yang

dapat diakses melalui aplikasi mobile.

3. Key Concepts in Digital Marketing

a) SEO (Search Engine Optimisation): SEO is the process of improving the

visibility and ranking of a website in the organic search results of search

engines like Google. According to Chaffey and Ellis-Chadwick (2019), SEO

techniques include content optimisation, keyword usage, and link building to

improve a website's position in relevant search results.

b) SEM (Search Engine Marketing): SEM involves the use of paid advertising to

display websites in search engine search results. According to Ryan et al.

(2020), SEM is effective for accelerating website traffic and can be used with

strategies such as Google Ads.

c) Social Media Marketing: Social media marketing uses platforms such as

Facebook, Instagram, and LinkedIn to build brands, interact with audiences,

and promote products or services. According to Evans (2021), social media

 marketing strategies can include content sharing, paid advertising, and

community management to build relationships with customers.

d) Content Marketng: Content marketing involves the creation and distribution of

e content such as blog articles, videos, and infographics to attract and

edvaluablucate audiences. Kotler et al. (2020) explain that relevant and valuable

content can increase customer engagement and build brand authority.

e) Email Marketing: Email marketing involves sending promotional or

informative messages to a list of customers or prospects via email. According to

Straus et al. (2019), email marketing is effective for building personal

relationships with customers and influencing their purchasing decisions.

4. Factors Influencing Digital Marketing Adoption

a) Limited Resources

MSMEs often face resource limitations such as finance, human resources, and

technology that can affect their ability to adopt digital marketing strategies.

Limited budgets can restrict their capacity to invest in sophisticated digital

tools and platforms, while a lack of skilled personnel can hinder effective

implementation and management of digital marketing activities (Ward et al.,

2018).

b) Knowledge and Skills

The level of knowledge and skills in digital technology plays a key role in the

adoption and implementation of digital marketing. MSME owners and

 employees must be equipped with the necessary digital literacy and marketing

skills to leverage online platforms effectively. Without adequate training and

education, businesses may struggle to navigate the complexities of digital

marketing (Mohammad et al., 2021).

c) Perceived Value

The perceived value of investing in digital marketing, including the potential

to increase sales, reach a wider audience, and strengthen the brand,

significantly influences adoption decisions. If MSME owners believe that

digital marketing will provide a substantial return on investment, they are

more likely to embrace it (Smith et al., 2020).

d) External Support

External support from government agencies, non-governmental organizations,

and industry associations can facilitate the adoption of digital marketing

among MSMEs. This support can come in the form of financial assistance,

training programs, and access to digital marketing resources and tools. Such

support can mitigate some of the barriers related to limited resources and lack

of knowledge (Jones & Rowley, 2019).

e) Competitive Pressure

The pressure to stay competitive in the market also drives MSMEs to adopt

digital marketing strategies. Businesses that observe their competitors

successfully leveraging digital marketing may feel compelled to follow suit to

maintain their market position and attract customers. This competitive

 pressure can act as a catalyst for digital transformation (Harrigan et al., 2017).

5. Impact of Digital Marketing on Business Performance

The implementation of digital marketing strategies has been shown to have

various positive impacts on business performance, including increased sales, greater

brand visibility, and reduced marketing costs (Ryan et al., 2020). According to Li et

al. (2019), MSMEs that adopt digital marketing well tend to be more competitive in

an increasingly digitally connected market.

1.1.2 Micro, Small and Medium Enterprises (msmes)

1. Denition of Micro, Small and Medium Enterprises (msmes)

The definition of MSMEs is regulated in Law of the Republic of Indonesia No. 20

Year 2008 on MSMEs.

a) Article 1 of the Law states that a micro enterprise is a productive business

owned by an individual or a sole proprietor company that fulfils the legal

standards of a micro enterprise. that fulfils the legal standards of a micro

enterprise.

b) Small enterprises are productive economic businesses that stand alone,

conducted ban individual or business entity that is not a direct or indirect

subsidiary of a business not a direct or indirect subsidiary of a medium or

large medium or large businesses that fulfil the standards of a small business

in the legal sense law.

 c) Medium-sized enterprises are productive economic businesses that stand by

an individual or business entity that is not a direct or indirect subsidiary of a

medium or large business. which is not a direct or indirect subsidiary of small

or large businesses with a total net worth or annual sales as regulated by law.

annual sales as regulated in the meaning of the law.

Micro, Small, and Medium Enterprises (MSMEs) in Indonesia are defined based

on the criteria of net worth, annual sales revenue, and number of permanent

employees. Micro enterprises have maximum assets of IDR 50,000,000 and an annual

turnover of up to IDR 300,000,000, while small enterprises have assets of more than

IDR 50,000,000 to IDR 500,000,000 with a turnover of up to IDR 2,500,000,000.

Medium-sized enterprises have a net worth of up to IDR 100,000,000 and a turnover

of up to IDR 50,000,000. In addition to these monetary value criteria, Statistics

Indonesia also uses the number of employees to classify MSMEs, with micro

enterprises having up to 4 employees, small enterprises 5-9 employees, and medium

enterprises 20-99 employees.

The contribution of MSMEs to the Indonesian economy is significant,

contributing around 60 per cent to GDP in 1999. MSMEs also play an important role

in maintaining national economic stability amidst crises, due to advantages such as

rapid innovation, flexibility, and the ability to adapt to changing markets. With a

focus on sustainable economic development, empowering MSMEs is strategic in

strengthening the structure of the national economy and increasing their

competitiveness in the global market.

2. Criteria for MSMEs

According to UUD No. 20 of 2008, MSMEs have the following criteria:

a. Micro Enterprises, namely production businesses owned by individuals

or individual-owned business entities that fulfil the following criteria

an individual or an individual-owned business that fulfils the following

criteria:

1. Has a net worth of at most Rp 50,000,000.00 (fifty million rupiah)

excluding land and building of the business premises. excluding land

and building of the business premises.

2. Has an annual sales turnover of at most IDR 300,000,000.00 (three

hundred million rupiah)

b. Small business, namely independent production economic businesses

carried out by individuals or business entities that are not subsidiaries or

affiliates owned, controlled or partially owned by subsidiary or affiliate

owned, controlled or partially owned either directly from a medium or

large business that fulfils the following standardised criteria as follows:

1. Has a net worth of more than Rp 50,000,000.00 (fifty million rupiah)

up to a maximum of Rp 500,000,000.00 (five million rupiah). up to a

maximum of Rp 500,000,000,00 (five hundred million rupiah)

excluding land and building where the business is located.

 2. Having annual sales of more than Rp300,000,000.00 (three hundred

million rupiah) up to a maximum of Rp 2,500,000,000.00 (two

billion five hundred million rupiah)

c. Medium-sized Enterprises, namely independent production economic

businesses, carried out by individuals or economic entities that are not

subsidiaries or branches of businesses that are owned, directly or

indirectly controlled by small or large businesses. which fulfils the

following criteria:

1. Has a net worth of more than Rp 500,000,000.00 (five hundred

million rupiah) up to a maximum of Rp 10,000,000,000.00 (ten

billion rupiah) excluding land and buildings designated for business

premises.

2. Having an annual sales turnover of more than Rp 2,500,000,000.00

(two billion five hundred million rupiah) up to a maximum of Rp

50,000,000,000.00 (fifty billion rupiah).

3. Classification of MSMEs

In terms of their growth, micro, small, and medium enterprises (MSMEs)

constitute the largest group of businesses that have proven resilient to various

economic crises. Therefore, strengthening the MSME sector is crucial to include

a wide range of groups. Here is the classification of Micro, Small, and Medium

Enterprises (MSMEs):

a) Livelhood Activities: These are micro, small, and medium enterprises

 (MSMEs) used as livelihoods to earn a living, often referred to as the

informal sector. For example, street vendors.

b) Micro Enterprise: These are micro, small, and medium enterprises

(MSMEs) that possess skills but have not yet become entrepreneurs.

c) Small Dynamic Enterprise: These are micro, small, and medium

enterprises (MSMEs) with an entrepreneurial spirit that can engage in

subcontracting and exports.

d) Fast Moving Enterprise: These are micro, small, and medium enterprises

(MSMEs) with an entrepreneurial spirit actively undergoing

transformation into large businesses (LB).

4. The role of MSMEs

It is recognized that Micro, Small, and Medium Enterprises (MSMEs) play a

crucial role not only in the development and growth of developing countries'

economies but also in developed countries. In developed countries, these groups

of enterprises are not only important but also crucial. They absorb the largest

amount of human resources compared to large businesses (LB), contribute

significantly to education, and have the largest impact on the country's Gross

Domestic Product (GDP) growth compared to large enterprises.

2.1 Conseptual Framework

In this study, the framework illustrates the relationship between the use of

digital marketing by MSMEs and their business performance. The variables involved

include the independent variable (digital marketing adoption), the mediating variable

(customer engagement), the moderating variable (MSME demographic factors), and the

dependent variable (MSME performance).

 Figure 2.1 Conseptual Framework

2.2 Hypothesis

Based on the problem formulation and research objectives that have been described, the

hypothesis that can be formulated is “It is predicted that the use of digital marketing can increase

sales of MSME products in Makassar City.”

2.3 Previous Research

Many researchers have previously conducted research on digital marketing for MSMEs. Below

is a table showing the results of previous research on digital marketing.

No Researchers Titile Of the Objectives Methodology Research

Research Research Findings
1. Addiini Analysis of To analyze Qualitative The use of
Fitrohwati digital the method with digital
(2023) marketing application of data collection marketing has
utilization in digital techniques helped in
the sale of marketing in through increasing the
Nawangwulan the sale of observation, sales of
Craft products Nawangwulan interviews, and Nawangwulan
in the village Craft products documentation. Craft products,
of Pait in the village with the main
of Pait and to benefits
analyze the including
challenges, increased
solutions, and promotional
benefits of reach and
 digital expanded
marketing in market share.
the sale of
these
products.
2. Annisa Utilization of To know the Qualitative and The use of
Yuliana Safitri Digital utilization of quantitative digital
(2022) Marketing in digital methods with marketing such
the income of marketing in data collection as WhatsApp,
UMKM the income of techniques Facebook, and
Awan food UMKM through Instagram has
and drink Awan Food observation, helped UMKM
And Drink. interviews, and Awan Food
documentation. And Drink in
increasing their
income.
3. Ajeng Nisa The Effect Of To analyze Qualitative The use of
Khairunisa and Digital the effect of method with social media
Dwi Novaria Marketing digital data collection such as
Misidawati Utilization In marketing techniques Facebook,
(2024) Increasing utilization in through Instagram, and
The Sale Of increasing the observation WhatsApp
Umkm sale of and library Business has
Products In UMKM studies. provided
Indonesia products in benefits such
Indonesia. as direct
communication
with customers
and product
promotion.
4. Rozini and Application To study the Qualitative The use of
Meriki (2021) of Digital effect of method with digital
Marketing In digital data collection marketing such
The Effort To marketing on techniques as e-
Increase The the income of through commerce,
Income Of UMKM interviews and Facebook, and
Umkm Actors actors in the documentation. Instagram has
 In The City city of helped UMKM
Of Makassar Makassar. actors in
increasing their
income.

5. Handayani, P., Utilization Of To analyze Qualitative and The use of

& Kurniawan, Digital the utilization quantitative digital
A. Marketing In of digital methods with marketing such
(2023) Increasing marketing in data collection as WhatsApp,
The Sale Of increasing the techniques Facebook, and
Umkm sale of through Instagram has
Products In UMKM observation, helped UMKM
Yogyakarta products in interviews, and in increasing
Yogyakarta. documentation their sales.