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Marketing and Innovation

Marketing and Innovation is the second biggest indicator of small business success (after Capital Access). As noted in Figure 10, this area is determined by seven measures of success. The majority of small business owners feel successful in only one area, getting existing customers to refer new customers. A full 70 percent are highly successful in this area, which is significantly higher than a year ago. One possible explanation for this improvement is that customers of small businesses are helping the businesses weather the lengthy recession by making referrals.

Figure 10

*Rated 8 to 10 on a 0 to 10 scale, where 10 = completely successful.

The marketing area of greatest failure for small businesses is in converting leads into buyers, with barely a third citing success in this area. Less than half of small businesses are successful in indentifying new customers, positioning themselves as having the same capabilities of larger competitors, and finding efficient ways to advertise. The limited success in these areas has not changed much since a year ago.

Finally, slightly less than half of small businesses are successful in innovation, which includes coming up with new ideas before competitors and finding ideas to increase revenue. Again, not much has changed in the past year.

The most recent SBSI wave examined marketing and innovation in greater detail, including the methods used by small businesses to attract new customers. When asked about six common categories used to obtain new business, the most common method – relied on by over a third of small businesses – is traditional print advertising such as newspapers, trade journals, and magazines (see figure 11). After this, email marketing is the second most common method used by a quarter of small businesses, and social media marketing which is used by a fifth. Half of small businesses do not use any of the six standard categories for marketing leads, but the majority of these “other” channels consists of reliance on referrals and word-of-mouth; this includes direct referrals, leads that come to the business because of its general reputation, or referrals by other businesses. Besides referrals, “other” types of marketing methods tend to be idiosyncratic methods related to the business such as:

  • Walk-in traffic
  • Outdoor advertising such as signs and vehicles
  • Farm markets, craft shows, etc.
  • Conferences, trade shows, and meetings (e.g., the Chamber of Commerce)
  • Agricultural commodities markets
  • Directories (print and online)
  • Personal selling and cold calling
  • The GSA Schedule for federal government business
  • Volunteering in the community.

The methods used for acquiring new customers vary by industry. For example, professional services firms, real estate businesses and entertainment/food/lodging businesses rely more on email marketing than other types of small businesses. Firms in the education/health/social services sector rely more on social media marketing and direct mail. Not surprisingly, retailers depend more on print and broadcast advertising.

Figure 11

In the current challenging environment, small businesses may rely on different approaches to differentiate themselves from the competition. Over three out of four small businesses rely on the strategy of offering superior customer service and higher quality products and services. Almost two-thirds rely on creativity while four out of 10 compete on price (see Figure 12).

Of these four methods, two have a direct relationship to success while two make little difference in success. The strategies that contribute to success are as follows:

  • Superior service – this is used by 90 percent of “highly competitive” small businesses but only 73 percent of “failing” small businesses
  • Creative ideas to address customer needs – this is used by 78 percent of “highly competitive” enterprises compared to only 53 percent of “failing” enterprises.

Competing on quality probably does not help a small business become successful because quality is usually a prerequisite for being in business. Poor quality may put a company out of business, but superior quality does not differentiate it successfully since competitors will also purport to offer high quality. Competing on price is not a sustainable strategy for a small business because larger companies will always win due to their economies of scale. For example, a small retailer cannot under-price Wal-Mart because the latter has the ability to buy in large volumes and pass through lower costs. What many large companies lack are impeccable service and creative problem solving.

Figure 12

Because creativity is important to small business success, the SBSI Survey asked owners where they get their ideas. The most common source of ideas, relied on by two-thirds of small businesses, is customers (see Figure 13). Other common sources include newsletters and trade journals, competitors, employees, suppliers, conferences and books.

The sources used for ideas depend on the industry. Wholesale/retail firms rely mainly on customers and suppliers for ideas. Conferences are more important for industries that rely on providing expertise rather than goods, including professional services, real estate and education/health/social services firms; while not the top source of ideas for these businesses, over half the businesses in these industries rely on conferences.

Figure 13


 
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