Reasons for staying small

Question 1

Define a small business.

Answer 1

The usual definition of small and medium sized enterprises (SMEs) is any business with fewer than 250 employees.

Question 2

Explain differentiation strategy of small businesses.

Answer 2

Creates value; highlights quality or durability of the product

Non-price competition; a differentiation strategy will focus on other ways of attracting customers such as taste and style

Brand loyalty; a differentiation strategy can gain customer loyalty

No perceived substitute; a differentiation strategy that focuses on quality and design may give the impression that there are no suitable substitutes in the market place

Question 3

Explain USPs of small businesses.

Answer 3

USP stands for unique selling point or proposition, it means what makes this product different from others on the market?

It is a way of promoting the features of the product or service of the business; quality, customer service, delivery, price, technical features or functions e.g. a feature is the reliability of the product, the benefit to the customer is less breakdowns and repairs

Question 4

Explain the flexibility of small businesses in responding to customers’ needs.

Answer 4

A small business can gain significant competitive advantage over larger companies if it responds quickly to customers needs

It can do this by

• Carrying out research into opinions, looking at customers websites
• Gaining feedback; forums, polls, users groups, online communities
• Track social media discussions about the products
• Collect data on customer transactions
• Collaborate with customers to produce new products or services

Question 5

Explain the survival of small businesses through customer service.

Answer 5

How else can a business differentiate themselves from their competitors? By giving excellent customer service.

Consumers appreciate businesses that give them more for their money, especially when times are tough.

Efficient service, fast delivery and flexible payment terms will help to persuade customers to spend with them rather than a competitor.

Question 6

Explain the survival of small businesses through E-commerce.

Answer 6

Small businesses can sell successfully through third party websites such as Ebay and Amazon

85% of UK consumers aged 18 or over already shop on the Internet

E-commerce will grow from 14% to 34% of all retail sales by 2020