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Weekly Thoughts: Marketing Gap

Here is something that caught our eye this week:

Marketing Gap

In our experience, many small businesses tend to view marketing technology as somewhere between a nice-to-have and a frivolous distraction. While most have a website, we observe an ambivalence toward more advanced initiatives like online newsletters, data-driven sales efforts, and social media engagement. At Chenmark, we are increasingly of the opinion that investments of this type are not just necessary, but mission critical. This is because the modern consumer — whether she is buying shoes, bread, or landscaping — has steadily rising expectations for how she engages with service providers. Salesforce explains further:

“The good news is that it is easy for small businesses to establish an online presence. The not-so-good news is that many small businesses stop there – unwilling to invest any further in technology that can deliver a great customer journey. This causes a problematic disconnect. There’s a widening gap between what customers are doing online and how small businesses are able to respond.”

Case studies in the retail space present the starkest demonstration of this widening small business-big business gap. According to a survey by MasterCard’s Global Insights team, almost 90% of small and medium-sized retail merchants have some type of online presence but only 20% have an eCommerce website (meaning they can accept online payments). This matters because relative to their larger competition, smaller retail businesses — even if they are offering a better product — are actually under-serving their customers by falling behind in the overall customer experience. Furthermore, these small businesses are missing out on an opportunity to collect data about customer purchasing habits, which compounds their disadvantage relative to bigger players, who diligently collect business intelligence and adjust their offerings in an ongoing effort to delight the customer. The Robin Report explains further:

“When it comes to leveraging technology, the picture for the mega-retailer is much clearer. But for small and medium-sized merchants, it’s still murky. The ability of large, often global merchants to dominate retailing creates an arena where small to medium-sized merchants may feel they cannot compete. The ability of large merchants to integrate technology both on the macro level outlined above, as well as in-store, presents a daunting competitive environment for small and midsized merchants.”

To us, the benefits of focusing on this area in our businesses can be significant. A recent Deloitte Australia report entitled “The Digital Race for the Small Business Customer” found that a 1% increase in spending on online services leads to an average increase of $100,000 in revenue; adding customer communication channels can lead to an average increase of $160,000 in revenue; and while 50% of all sales will involve some digital tools in five years, less than 20% of SMBs are currently using social media to engage with customers. Some small businesses, especially those in more retail driven industries, are catching on (recent surveys report increased spending on digital initiatives), but from our purview, there is still plenty of runway in other industries.

It may be easy to dismiss steadily increasing digital marketing spend under the cover of ignorance or incomprehension, but the reality is that these trends are here to stay. In fact, they will become more critical as Millennials enter their 30’s, and expect the digital world they have grown up in to keep pace with their maturing lives. If a buyer of a service can get packages delivered to her doorstep by drone, will she really tolerate having to fax in the renewal for her company’s snow removal contract? Whether we like it or not, our businesses must evolve to keep pace with changing consumer behavior because if they don’t, they, like many other small businesses, risk being left behind.

The Robin Report, Salesforce, Deloitte

 

Have a great week,

Your Chenmark Capital Team

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