Small Business: How Do They Optimise Risk?

A recent survey by the Confederation of British Industry (CBI) highlights how small businesses in the UK have gone on their biggest hiring spree since records began a generation ago in 1988, with 24 per cent of companies saying they were increasing staff numbers. This is fuelled by booming domestic demand that has delivered a fourth consecutive quarter of growing output and orders for small to medium sized businesses.

 

These figures will stoke some optimism in the UK, at least that the economic recovery is bearing fruit beyond London and the financial services industry. However export orders remained flat in the three months to July, which was worse than expected. The CBI said that the disappointing export performance may be a consequence of the strong pound, which has forced about a dozen quoted exporters into profit warnings in recent weeks.

 

Although about 31 per cent of companies said they were more optimistic about their business situation, against 11 per cent who reported being less optimistic. However the CBI sounded a note of caution that shortages of skilled labour were impeding companies’ growth plans. The proportion of companies citing shortages as a factor hampering output rose sharply, from 14 per cent to 23 per cent, over the quarter, reaching similar levels to the second half of 2007 before the recession, despite the unemployment being nearly 15 percentage points than in 2007 at 6.6 per cent.

 

I remember learning back in the 80’s that the last budget you should cut during a recession is your training and development budget and it seems surreal 30 odd year’s later that business doesn’t learn from the past. It doesn’t take a rocket scientist to predict that once a recession is over ‘your’ organisation is going to need to recruit ‘new’ talent to support its growth – just the same as it did during the good times.

 

But it seems that after a recession many small businesses just simply aren’t ready to ‘adjust’ to the turnaround – albeit that theory and past practice tells you that the turnaround will come.

 

There seems to be this weird change that goes through the minds of many small business owners when times are tough – for some reason fooling themselves that ‘recession’ isn’t just a normal part of the cycle of business and local/global economies – and hence many don’t just become cautious they become totally risk averse.

 

For example, looking at the small business sector in the UK again – a study of the exporting habits of small and medium-sized companies found that some of the world’s fastest growing global markets were ‘severely underrepresented’. Where the study identified that British small businesses are more likely to export to New Zealand than China, prompting concerns that companies are missing opportunities.

 

Research from a survey of 1,000 small businesses by FedEx showed that small companies regard China, the world’s second biggest economy, as the most challenging country to trade with. Trevor Hoyle, vice-president of FedEx Express in the UK said “although UK SME’s are doing a good job, there seems to be a lack of awareness, and not only of the benefits to exporting, but to the resources available, which are plentiful if you know where to look.”

 

There is a huge difference when it comes to risk of being brave and being stupid – where having the courage to identify growth markets and going for them while others ‘ponder’ on the potential pitfalls can give you a significant competitive advantage as you develop contacts and relationships with your ‘new’ export market. China, for example, are going to buy from someone – so why wouldn’t you want it to be you?

 

References:

 

Hurley, J. (2014). Small firms held back by failure to see the big picture. The Times. 4th August, p.47.

 

Leroux, M. (2014). Small businesses hire staff at fastest rate since 1988 but need export help. The Times. 4th August, p.48.

 

Is 'Good' Service a Myth or an Opportunity?

The concept of experiencing good customer service seems to have taken a nose dive in the last decade. Where people who have a good customer experience, often seem to respond with ‘surprise’, more than anything else, as good service seems to be something most people simply don’t expect to encounter anymore.

 

When you ask people about customer service these days they normally reply with horrendous stories and cynicism. This is especially true on social media sites where anyone expecting good service these days seems to be labelled naïve and out of touch with reality. 

Speaking to a colleague recently about customer service, he relayed an experience with a company in New York that he phoned for a quote – in fact their advertisement encouraged potential customers to phone for a quote. When he was given the price, he replied that he was looking for something a little cheaper than the price quoted; and the reply from the ‘shop’ was; “then why the f..k are you phoning me then?”

Unsurprisingly they didn’t get his business – and one has to wonder how the company survives. We also don’t know if the person who took the call was the owner or not; but that just opens up more questions and concerns.  If it was the owner then one assumes he makes so much money he doesn’t care who he upsets and how many clients he loses; or how many people hear about his approach to customer service. If it was an employee then the owner isn’t blameless, as they have put them in this front-office role and one wonders if this approach is part of the employees training.

The good news is that for those looking for a unique competitive advantage that will make them stand out from the crowd of competitive offerings – then good customer service is one influencing factor that is just ‘out there’ waiting to be utilized once again. Once you get beyond the rhetoric, everyone responds well to good customer service – whether they are cynical about the concept of service or not. It isn’t just a basic competitive advantage, but it is a key influencing factor that will encourage the customer to repeat purchase and even to become loyal over time, assuming the price and quality also meet their expectations. 

Though we must remember that customer service includes the whole package – it’s not just the ‘buying’ experience, but the ‘functionality’ of the purchase and the fact that it also meets and/or exceeds the customer’s expectations.

In most cases good customer service doesn’t cost an organisation anything -  as it’s mostly about attitude and values, and it’s something the organisation either instills in its work ethic or it doesn’t, ensuring it recruits the right people and then trains and develops them in the right way.

So if it’s so easy, why don’t organisations, from the small family business to the large corporate, spend the time developing a customer centric culture? And the answer seems to be that they simply have a lazy approach to business and a feeling of entitlement around their position or status. It’s a sad reflection on many leaders who represent and instil the culture of their organisations, that they don’t see service as a key function of their business offering. Appearing to consider customers as ‘things’ or ‘throughput’ rather than individuals – where these short-sighted organisations are simply interested in the ‘purchase’ – where they seem to believe that the “are you going to buy, if not don’t waste our time” approach will somehow miraculously lead to sustainable business growth.

In the next few years there will be a definite change in the business environment across all business sectors – where some ‘smart’ organisations, looking to increase their market share and wanting to influence their sustainable growth, will see that customer service is a simple win-win scenario for them to embrace and implement. They will appreciate that if leaders and employees can get over their own feeling of importance and concentrate on giving the customer a ‘great experience’ then the organisation will earn a sustainable benefit and a special place in their market segment.

 

Are Organisations Looking After Elderly Consumers?

Back in 1984, Charles Schewe mentioned in an  article that “the usefulness of ‘minorities’ as a means of segmenting markets has been a fertile area for market researchers for many years, but that they have largely neglected the elderly, those consumers over the age of 65. Marketers have failed to fully explore or understand the dimensions, character, and potential of this market. Furthermore, marketing activities directed specifically at this ‘older’ market seem to be a missed opportunity of sizeable importance. From a sales and profit potential, the elderly market is well worth the research effort necessary to secure accurate information about how to satisfy them. The elderly constitute a significant and growing market, where women outnumber men 3 to 2 and only 5 per cent of these seniors live inside institutions. Only 10 per cent of them live with children. Household size logically is reduced as is full-time employment. While health is generally poorer, only about 15 per cent require special health or social services. The elderly are not poor. Per capita income in households headed by 65+ persons is but 7 per cent lower than the general population average; and it has been estimated that the elderly need only about 60 to 80 per cent of former income to maintain their standard of living, and are given to ‘dis-save’ rather than to hold on to their assets.”

 

Nearly twenty years later in 2003 research by Yany Gregoire highlights that little has been done to address the ‘elderly consumer’ both from a strategic, service and product focused perspective. In fact if you read academic articles on this subject most still site references going back to the 80’ and early 90’s because so little seems to have been done since then.

 

Part of the problem is that you have to be ‘elderly’ to understand this segments needs and concerns; and if not elderly you have to have been performing the role of a carer to even start to understand all the dynamics that are going on. The problem is that you have young minds trying to imagine their older counterpart and in my experience, as a carer, missing their needs, expectations and hence the opportunities by a mile.

 

It’s worth remembering that the over 65 age group is a significant market size now, and is just going to grow in size in the future becoming a ‘powerful’ market force to those that can learn to understand their needs and communicate with them effectively. The steps behind the theory are no different to any other target-market segment, you must understand their expectations and create the products and/or services meet them.

 

Another part of the problem I’ve noticed is that many ‘front-office’ staff simply don’t have the patience to deal with this ‘target-market’ – so as they show their frustration, their customer either walks away or hangs-up the phone and the potential sale is lost. Worse still this customer segment will not forget and will not engage with that firm again – contrary to what many seem to think, this age group are very ruthless when they receive poor service (whether real or perceived) and yet can be extremely loyal to the company or individual that gives them the service they need.

 

Two key facts are that, firstly this is already a huge lucrative market segment that is only going to get bigger – so it’s worth making some effort to listen to their needs and attract their custom; and the second fact is that, if you’re lucky, you’ll be that age one-day so treating people like you’d like to be treated is an old axiom worth remembering.

 

Organisations are missing out on real opportunities within this ever growing target-market and hence are leaving the door open for sme’s and entrepreneurs with the right vision and patience, to carve out a nice little niche for themselves – which if developed correctly will give them a loyal and growing customer base, and a sustainable business going forward.  

 

References

 

Charles D. Schewe. (1984). Buying and Consuming Behavior of the Elderly. Findings From Behavioral Research. Advances in Consumer Research. Vol. 11, p.558-562.

 

Yany Gregoire (2003). The Impact of Aging on Consumer Responses: What Do We Know? Advances in Consumer Research. Vol. 30, p.19-26.

How Well Do You Know Your Customer?

“Despite all the money invested to promote loyalty among high-value customers, it is increasingly elusive in almost every industry,” say Stephanie Coyles and Timothy Gokey after completing a two year study of customers approach to purchasing decisions and ‘loyalty’ to organisations from 16 industries, covering a diverse range of products and services, from airlines to consumer products, (McKinsey Quarterly, 2002, p.81).

They found that managing migration, in respect of customers who spend more, as well as customers who spend less, was a crucial next step in understanding customer behaviour. They found, in fact, that many more customers change their spending behaviour, leading to a more significant impact on organisational performance than those customers who ‘defected’ to competitors.

Coyles and Gokey found that “managing migration not only gives companies an early chance to stem the downward course before their customers bolt entirely but also helps them influence upward migration earlier.” The also found that “by learning to understand why customers exhibit different degrees of loyalty and combining that knowledge with data on current spending patterns, companies can develop loyalty profiles that define and quantify six customer segments,” (p.82-83).

Three of the key segments are related to customer loyalty profiles and the other three to downward migrators.

The three loyalty profiles are;

1) Emotive customers are the most loyal, feeling strongly that their current purchases are right for them and that their chosen product is the best, they rarely assess purchasing decisions. Coyles and Gokey’s research showed that emotive customers generally spend more than those who deliberate over purchases, and hence, are a primary focus for organisations and their marketing efforts;

2) Inertial customers rarely assess their purchases, but unlike emotive customers their inaction results from high switching costs or lack of involvement with products. Utility and life insurance companies are good examples of this segment. Also they noted that these customers aren’t prone to spend more or less than they currently do;

3) Deliberators are on average the largest customer segment, representing 40% of all customers across all industries. However the rewards from influencing deliberators can be twice as high as the other two segments, above. Deliberators frequently reassess their purchases by criteria such as products; price and performance and the ease of doing business with an organisation.

For the other three segments, Coyles and Gokey found that the downward migrators have one of three reasons for spending less;

1) Their lifestyle has changed (for example, having lost a job or having a baby);

2) They have developed new needs that the company isn’t meeting; as they continually reassess their options and have found a better one; or

3) They are actively dissatisfied, often because of a single bad experience.

Coyles and Gokey highlight how “although changing needs are often dismissed as uncontrollable, our work shows that they can be addressed, especially if a company invests in a new product or channel. Meeting these new needs is a smaller but relevant part of the overall loyalty opportunity,” (p.85).

It’s also been shown that loyalty profiles differ across industry sectors, and that each industry has an average behaviour pattern that influences customer decisions. Where these patterns are generally determined by five structural factors;

1) How often purchases are made;
2) The frequency of other kinds of interaction (e.g. service calls);
3) The emotional or financial importance of a purchase;
4) The degree of differentiation among competitor offerings; and
5) The ease of ‘switching.’

Coyles and Gokey’s research adds a third dimension to developing specific customer-centric strategies. Most customer profiles analyse the product or service in relation to the industry and the micro target-market segmentations. Now organisations can develop detailed three dimensional customer profiles for their products or services, in relation to the industry segment, the appropriate target markets, and their related loyalty or migratory segment. This allows organisations greater clarity and focus in developing effective customer-centric micro-strategies that will improve customer relations and loyalty, increase sales, and critically ensure that the marketing budget is spent in the most appropriate three dimensional quadrants.


References:

Coyles, S. and Gokey, T.C. (2002). Customer retention is not enough. The McKinsey Quarterly, No.2, p.80-89.

Getting Real Value from Customer Value Propositions

A 2004 survey by Strativity concluded that 50% of salespeople don’t actually know what features and benefits actually justify the prices of the products and/or services they sell, (D’Aveni, 2007).

The Customer Value Proposition (CVP) allows organisations and their sales people to complete a detailed review of the products and/or services they offer and compare these to their competition. Of course, in order to complete a CVP you must first ensure that you have a detailed understanding of your customer’s requirements and expectations.

A CVP compares your product and/or service offering with the next best alternatives and looks at four distinctive areas;

1. Positive points of difference – which lists the features that are superior to the next best alternatives;
2. Points of parity – which lists features that are comparable with the next best alternatives;
3. Negative points of difference – which lists the features that are inferior to the next best alternatives; and
4. Points of contention – which lists the features where you disagree with your customer about the benefits of these particular features. Where in some cases you may consider them superior to the next best alternatives and your customer disagrees, or just as important where you may consider them inferior to your competition and the customer disagrees.

Developed correctly the CVP gives an organisation a clear picture of how their products and/or services compare to those of their competition. As with all business tools CVP’s are created in a dynamic environment - where you must look beyond the next best competitive alternative and assess all current and potential product offerings that directly impact your market. It’s better to analyse your product and service offerings against all competitors just to make sure that you are not over simplifying the analysis.

When considering benefits it’s important to consider both the tangible and intangible benefits and correctly interpret the customer’s perception of these intangible benefits, including what they are prepared to pay for them. Also, don’t assume what is ‘good’ for the customer today will be ‘good’ for the customer tomorrow.

CVP’s are used to show an existing or potential customer how your product and service offerings are better than the other alternatives and how your product is best for their needs.

Imagine the full potential, both internally and externally, of developing and understanding your CVP’s and how these can be transformed into a very powerful presentation for your existing and potential customers? You will not only show that your organisation understands your customers needs but also how your product and/or service will exceed their requirements. Also you convey, through the depth of knowledge and research, that you are fully aware of the current market and all the alternative offerings.

Finally, remember that “each value proposition must be;
1. Distinctive – must be superior to those of the competition;
2. Measurable – all value propositions should be based on tangible points of difference that can be quantified in monetary terms; and
3. Sustainable – the company must be able to execute their value proposition for a significant period of time. (Anderson, Narus, and van Rossum, 2006, p.98)”

Customer Value Propositions exist in a dynamic world and must be reviewed and developed on a regular basis, so that they continue to add value to your organisation and your customers.

References

Anderson, J.C., Narus, J.A. and van Rossum, W. (2006). Customer value propositions in business markets. Harvard Business Review, March, p.91-99.

D’Aveni, R.A. (2007). Mapping your competitive position. Harvard Business Review, November, p. 110-120.