3.2.4 Reasons for staying small

Question 1

Small business

Answer 1

Small and medium sized enterprises is any business with fewer than 250 employees.

Question 2

Reasons to stay small

Answer 2

1. Product differentiation and USP.
2. Flexibility in meeting customer needs.
3. Deliver high standards of customer service.
4. Exploit e-commerce.

Question 3

Product differentiation and USP

Answer 3

• Creates value: highlights quality or durability of the product.
• Non price competition: focuses on other ways of attracting customer such as taste and style.
• Brand loyalty: gain customer loyalty.
• No perceived substitute: focusing on quality and design may give impression that there are not suitable substitutes.

Question 4

Flexibility in meeting customer needs

Answer 4

• Many small businesses talk to their customers regularly and so are more in tune with their needs.
• Easier to get customer feedback.

Question 5

Deliver high standards of customer service

Answer 5

• Most small businesses operate in the service sector, so this is a key source of competitive advantage.
• Employees in small firms are likely to treat customer service as a priority.
• Customers appreciate businesses that give then more for their money.
• Efficient service, fast delivery and flexible payment terms will help to persuade customers to spend with them rather than a competitor.

Question 6

Exploit e-commerce

Answer 6

• Obvious way for small firms to reach broader customer base.
• Easy to target niche segments both domestically and overseas using e-commerce.
• Smaller firms can gain significant traction with customers using social media.
• Can also distribute/sell through third parties e.g. Ebay, Amazon.