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Management masala Should Small Businesses Invest in Customer Acquisition or Retention A US Perspective Anjani Kuma Sinha

Contribution of small businesses in US economy has grown rapidly in the last decade.  As per
U.S. Small Business Administration (SBA), 23 million small businesses in America account for 54% of all U.S. sales. 

Although the impact of each small business might be small, the small businesses altogether have accounted for 55% of all jobs and 66% of all new jobs since the 1970s in U.S.

In the current economic downtrend scenario, while the big corporate are downsizing, there is a significant growth in start-ups. The rate of failure of small businesses has also declined, according to SBA.

Retention or Acquisition: A dilemma for small businesses

Horizontal expansion strategy which relates to expanding the business territory and the acquisition of new customers has been the key strategy for small businesses.

However, a recent report by US-bases research firm BIA/Kelsey and online business directory Manta suggests that small business owners are now more focused on strengthening relationships with their existing customers rather than on acquiring new ones.
Management masala Should Small Businesses Invest in Customer Acquisition or Retention A US Perspective Anjani Kuma Sinha

The report, “Achieving Big Customer Loyalty in a Small Business World,” reveals that small business owners are spending less time and money on customer acquisition. 

The report surveyed nearly 1,000 small business owners. About two-third of the respondents said they generated half of their revenue from repeat customers and spent majority of their annual marketing budget to retain those existing customers.

Only 14% are spending the majority of their annual marketing budget to acquire new customers, and only 20% are investing most of their time and effort to acquire new customers.  


Missing Customer Loyalty Programs

While the report clearly suggests that the majority of small businesses have understood the power of retaining customers who could be better sustainable source of revenue, they still have no clear marketing strategy for customer retention.

One area where most of them lack is the customer loyalty program..

Management masala Should Small Businesses Invest in Customer Acquisition or Retention A US Perspective Anjani Kuma Sinha
About one-third of small businesses have a loyalty program while the two-third do not have.

A majority of SBO loyalty programs are offline rather than online, hence the failure to take advantage of customer insights, which is the key success factor in a customer loyalty program.

Moreover, of the one-third small businesses that have the loyalty program, only 46% are in digital forms such as an email list. The remainder are paper-based (31%), verbal/word-of-mouth or in another form (17%).

Apparently, small businesses do not have clear objective to achieve from loyalty program and there are no clear measurable parameters for return on investment (ROI) through the program.

When asked about the purpose of their customer loyalty program, 39% of those who have the loyalty program said to “improve customer relationships” and 36% said to “grow revenue”.

Without a clear objective and proper digital tools to drive the program and to find insights, small business’ strategy to retain customers and to grow lifetime value will remain challenging.

By Anjani Kumar Sinha (anjanisinha@managementmasala.com)
On 6/02/2014

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