Why do customers shop at local small businesses?
– Stephanie Rabiner is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. This article originally appeared here. –
Despite hard times and shrinking profits, Americans still shop at locally owned, independent retailers.
A new small business survey from American Express polled 1,000 consumers aged 18 and older. Ninety-three percent of respondents believe that it’s important to support local small businesses. And on average, they spend about one third of their monthly discretionary income at these stores.
How can you capitalize on this information?
Survey respondents primarily shop at small businesses because of friendly employees and product knowledge.
Additionally, 87 percent of respondents share favorable opinions about a business, while only 69 percent share negative feedback. The majority use word of mouth and social media. Only 13 percent use sites like Yelp! and Citysearch.
Do you already have the right employees with the right knowledge? If so, the small business survey seems to suggest that you should work on peer-to-peer advertising. Yelp! receives a significant amount of attention these days, but social networking appears to be a better use of resources.
RatePoint taking aim at Yelp?
Customer reviews can be crucial to a small business, especially in a climate where consumers are trying to make smarter decisions about their purchases. It’s no surprise then that review sites such as Yelp, Local and Mahalo have flourished over the last few years.
RatePoint is the latest to attempt to cash in on the trend, having secured more than $20 million in funding since it launched in 2006. Recently the Needham, Massachusetts-based site got another $7-million from three local venture capital firms: Prism Venture Works, .406 Ventures and Castile Ventures.
Neal Creighton, RatePoint’s co-founder and CEO, insisted his company is not just another Yelp, noting RatePoint’s reviews come from actual customers and not just a community of reviewers that may have no connection to the company. It’s a subtle, but important distinction, said Creighton.
“There are a lot of emotional reviews on Yelp, where people had a bad experience, but they didn’t interact with the business,” he said, adding if a business gets a bad review on RatePoint, it’s encouraged to have a dialogue with the offended customer to try to work things out. “In our system when they have a chance to interact with the business, they feel completely different; you get a better and real picture of that business.”
Yelp is the current leader of review sites, attracting more than 30 million visitors a month and logging more than 12 million reviews since launching in 2004.
Creighton said the continued pervasiveness of the Internet in the day-to-day lives of consumers has caused businesses to adjust their marketing strategies to more fully take advantage of online reviews and social media. He said now 70 percent of people read a review online before buying a product. Additionally about 70 percent of the businesses RatePoint works with are using Twitter and Facebook.
“When Yelp started a lot of small businesses weren’t as aware of how your reputation could be affected on the Internet and what reviews could do,” said Creighton, noting every disappointed customer costs a business 10 others in bad referrals. “In the last 18 months we’ve seen a nice progression of small businesses getting online and being active and worried about their reputations.”
Ms. Rabiner,
I enjoyed reading your post and was pleasantly surprised to read that consumers still shop at locally owned, independent retailers. The links and statistics provided were especially informative such as how you stated, “in a small business survey, ninety-three percent of respondents believe that it’s important to support local small businesses.” I was even more surprised that consumers spend about one third of their monthly discretionary income at these stores. I agree that these independent retailers’ main advantages over large retail chains are friendly employees and product knowledge. There’s a book, The Loyalty Effects (a Harvard Business School Publishing) that reiterated your point and showed successful companies in any field of enterprise had one common trait—they had low employee turnover rates. Additionally, I think the ability for smaller independent stores to cross-train employees is another significant advantage over large retail chains that have employees specialized in departments. From a consumer standpoint, you want to be able to walk in the store and ask anyone in there for the help you need rather than having to be directed to the right person. An even better situation is walking in a store and knowing the person working inside on a first-name basis. This level of familiarity and comfort provides a certain amount of loyalty and trust that can often supersede lower prices. What’s your view on cross-training vs. specialization of employees?
While, these small stores have certain advantages, I also think it’s still very challenging for local owned stores to compete with the convenience level of megastores like Wal-Mart and Target where a customer can buy all their desired products (clothes, food, electronics, and more) at one store. How do you think small retail stores can compete with the convenience levels that Wal-Mart and Target stores provide, especially as they continue to expand and become even more popular? Large retail chains also have much more resources in learning about their consumers. For example, are you aware of the checkout scanners and data-mining software that provides retailers with insights into local preferences and buying behaviors? I think these types of consumer research tools would be very beneficial and is becoming necessary for any sized retail chain, large or small.