SMBs Shift Investment from Customer Acquisition to Customer Engagement, BIA/Kelsey Finds

For the first time, small businesses are investing more of their time, money, and resources in strengthening relationships with existing customers versus acquiring new customers, according to a new report by Manta and BIA/Kelsey.

In 2012, BIA/Kelsey reported that small business owners prioritized customer acquisition over customer retention at a 7-1 ratio. Recently, a new trend is developing, as 61 percent of small business owners surveyed report more than half of their annual revenue comes from repeat customers rather than new customers and that repeat customers spend 67 percent more than new customers. In line with this, small business owners are spending less time and money on customer acquisition; only 14 percent are spending the majority of their annual marketing budgets to acquire new customers, and only 20 percent are investing most of their time and effort to acquire new customers.

Even with this shift in small business behavior, business owners are not yet poised to take full advantage of their customer relationships. The study found that only 34 percent of small business owners have loyalty programs while the majority (66 percent) do not. Moreover, the majority of SMB loyalty programs are offline rather than online, failing to take advantage of technologies that enable seamless implementation and deeper customer insights.

Unfortunately, while email and social media rank as the most effective features, only 46 percent of customer loyalty programs are digitally run and managed, with more than 50 percent of small business owners still relying on paper-based or word-of-mouth programs.

"Our joint research shows that customer loyalty programs are starting to gain traction in the small business community," said Jed Williams, BIA/Kelsey's vice president of strategic consulting, in a statement. "This finding aligns with BIA/Kelsey's analysis that over half of small businesses will launch customer loyalty programs by the end of 2014 to help their businesses become more competitive."

The report also offers the following tips as the first three steps small businesses can use to begin building a customer loyalty program:

1. Start with the End in Mind: Start with the desired outcome in mind. Define your goals and what you want to achieve from a customer loyalty program. Make sure the goal is specific and can be measured, as it will dictate the strategy and tactics you put in place. The goal of wanting more business is too broad; instead determine if you want to decrease customer churn, increase average order size, improve customer acquisition, etc.
2. Determine Your Audience: Will the program be for all customers or just your best customers? You may want to target customers by spending thresholds, frequency of purchases or even specific products. Targeting a specific group helps you reward ideal buying behavior, subsequently driving more of it. If it's your first time launching a customer loyalty program, starting with one group could keep you focused and make it easier for you to track results and metrics.
3. Structure Your Program ROI-Positive: Once your primary goal and audience are in place, you can then determine your program structure. Will your program be points-based or have a tiered reward structure? Make a list of multiple options that could help you meet your goal, assess how much they cost and how much they will net you in return to identify the best structure for your business.

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