November 2018 - Digital Transformation

Digitalization: The Key Competences SMEs Should Bet On

How can SMEs stand out in the crowd and find their target customer in a changing business environment? Lucie Poisson and Martin Schmidt from 1&1 IONOS investigate.

© RomoloTavani | istockphoto.com

Digitalization is one of the buzz words these days that nobody gets tired of using. It seems to be fitting in almost any context. A lot of the more general discussion seems to revolve around how everything is shifting to the Internet, how things are becoming digital, and sometimes it is reduced to a discussion purely about the need for broadband Internet access. None of these viewpoints are wrong, but most of the time they fall far too short, with an understanding of digitalization that is far more holistic actually being needed.

In the end, digitalization will affect every single business, from large enterprises to the small mom and pop store around the corner. And while the large corporations have picked up on digitalization and hired smart people to figure out how to deal with it, many small business owners have not even realized the magnitude of the change ahead of them. Digitalization will in the end have a similar impact on society as railroads or electricity – if not even greater than that.

Whilst some companies might be better equipped to deal with the challenges of digitalization than others, every single business will need to find their way and sharpen their understanding of what digitalization means for them.

Digitalization - more than swapping a pen for a spreadsheet

Digitalization is not just about moving work that has been done with pen and paper to a computer, but potentially about changing the complete workflow or even making the whole process obsolete. Think about taking inventory of your stock, where staff count goods and note them down on paper. In a digitalized world where stock has RFID markers, you have an instant and real-time view of your stock, no manual stock counting, and maybe even an automated restocking.

There are a handful of companies in control of how consumer demand reaches the suppliers of goods and services. At no point of time before has such a concentration of consumer demand existed.

Consumer demand generation and control for businesses is another context that will be highly impacted by digitalization in the future.  With consumers surrounded by omnipresent smartphones and voice assistants, there are a handful of companies that are in control of how this consumer demand reaches the suppliers of goods and services. Google and Amazon are both dominating the voice market and Google and Apple have a strong hold on the mobile market; effectively, they have become gatekeepers.

While in the past consumers would go to a local store to buy things or drive to the next shopping center, they are now more and more turning to online purchases. With the strong dominance of these very few platforms, huge chunks of consumer demand are now channeled through these systems. At no point of time before has such a concentration of consumer demand existed.

The companies in control of these platforms will in all likelihood in the end also control who gets to sell to these consumers - either by directly diverting the demand or by simply giving or not giving visibility to the apps or voice services of the respective companies.

Small businesses have two options: become part of the platform, or try to create a unique story and branding to attract local crowds.

While larger companies can invest into building visibility on these platforms, small businesses have little chance to compete here due to their lack of resources and expertise.  

Small businesses are left with two options: become part of the platform and become a more or less anonymous fulfilment element who is forced to compete on price, or try to stick it out by creating a unique story and branding to attract local crowds.

“Soft Marketing”, the unexpected strength of SMEs

Many small businesses may be tempted to compete on price. But by doing so, they could put their financial health in danger, as they have to maintain a very good management of their cash flow. Certainly, digital tools will allow SMEs to reduce more and more financial risks, but providing cheaper prices will remain challenging for businesses of small scale. Being competitive and developing better products or services may also entail a painful option for SMEs because long term investments don’t always stand for certainty of results, and small businesses usually cannot allow themselves to fail.

Nevertheless, there is one route SMEs should explore to survive in the middle of the digital storm: Working on what is related to the promotion of their products or services. Indeed being more marketing oriented – no matter whether offline or online – will lead SMEs to differentiating themselves relatively easily from the anonymity and uniformity of platforms like Amazon, without any big investments. For small businesses, this marketing would not be centered on broad TV campaigns or expensive media bookings, but rather on “soft marketing”. It means SMEs would focus mainly on their branding and the storytelling of their business, using limited but flexible resources associated with a very precise targeting. 

Interestingly, commercial communication is an area where existing SMEs traditionally didn’t put a lot of effort because they tended to consider that their best advertising was their quality products or services, or their location. While this still holds some weight, in a world which is becoming more competitive because of digitalization, this is not enough. That’s why, for small businesses, developing minimal marketing skills may pay off as an interesting option to survive in a better position.

The main marketing competencies to develop

To reach profitable results, there are three main and complementary marketing-oriented competencies which are especially meaningful to work on for small businesses.

First, SMEs will have to identify faster and more exactly the expectations of the customers and understand what it means for their daily business, in terms of risks, but also of possible opportunities. Whereas yesterday, SMEs were led by their instincts and experience in taking decisions, tomorrow they will more actively compare their own insights with trends identified on specialized media, or data and statistics underlined by their own software. 

Digitalized businesses will have an unbeatable advantage: they will be able to get an exact and real-time picture of their performance with very little effort.

Indeed, digitalized businesses will have an unbeatable advantage as they will be able to cross-reference data and get an exact and real time picture of their performance with very little effort.

As a second marketing competence, analyzing what the competitors are doing will be key to searching for new ideas aimed at differentiating their business from others. From this perspective, SMEs will especially have to rethink what their main added value is compared to online businesses and ask themselves whether an online presence would make sense for their customers, and if so, how. These questions are maybe the most difficult to answer for an SME, as it requires some knowledge regarding the general customer behavior offline and online and depends on a lot of variables.

Last but not least, a very proactive demonstration and communication of these competitive distinctions will be even more crucial. This aspect is especially important if SMEs want to deal with younger generations such as the Millennials, as these are very keen on testing original concepts and speaking about them in their own networks. Social media may help in promoting the business identity and the tone of voice of the company. In addition, these platforms are wonderful tools to get almost instant feedback from relevant customers or prospects about any new idea. 

A growing focus on customers

These new areas of competencies will lead SMEs to change their vision of their own business, to be a bit less oriented to their own passion, and to take the end customer more into consideration. This new balance, where customer expectations play a more prominent role, is very challenging for SMEs because the core business tends to be less important – which could be quite frustrating – and because SMEs have to learn new skills. This is a profound shift for SMEs.

Entrepreneurs will have to be more conscious of the importance of their business image, and actively develop it.

As a consequence, entrepreneurs will have to be more conscious of the importance of their business image, and actively develop it. Today, a business owner spends a lot of time in searching for the right name and the right logo for his or her company. Taking these two aspects seriously still makes sense. But in terms of company image, SMEs have to think more broadly and explore additional areas, as simple as: using a professional email address based on the company name; providing an ‘official’ online presence, whether it is through a website or a social media page instead of letting listings do so (usually with inexact information); or managing reputation, both offline and online. Marketing videos – for example, creating small events through Facebook Live – are also an attractive way of showing what makes a small business tick and reinforces a business image. The good news for SMEs is that current tools allow this at almost no cost. It is essential that the best tools are identified for the appropriate customer base. 

SMEs will have to define and develop concepts in order to be in the minds of the people.

The second challenge is related to the expectations of customers. Nowadays, not only are customers showing a lower level of demand for SMEs than for bigger players, but what is already very challenging for small businesses is having neither the same number of employees nor the same logistics. Nonetheless, customers are looking more and more for living, original, and exclusive experiences. SMEs will have to define what sort of concepts they can develop in order to be in the minds of the people. It can be promoting minimalistic storytelling regarding products in the communication, adding a bit of surprise and experience with an entertaining mode in the provided services, having an exemplary and personalized management of the customer… To take a concrete example, a local butcher could organize workshops on the art of successfully barbequing and thus develop a younger customer base. 

For SMEs what will be key is not to reach the largest number of customers possible, but the people in a defined place who may most need the product or service, and who are the most likely to share their experience and satisfaction. Serving all the needs of a specific target group – e.g.: young mums taking Pilates classes in one defined city – will be more decisive than only providing isolated good products or services. Indeed the optimal mix for turning prospects into repeat customers is when hyper individualization meets hyper localization in a consistent and appealing experience that will be intensely linked to their business image.

Networks of small businesses could create a common digital loyalty program.

In addition, in the future, SMEs should think more in terms of networks: this approach is especially interesting if it succeeds in reducing effort and multiplying synergies, namely regarding visibility. It can take several routes. For example, a business could organize a private event for its existing customers where participants have to come with one friend and could promote the party on social media and through a newsletter. But taking the opportunities provided by digitalization more into account, networks of small businesses could create a common digital loyalty program, splitting organizational and communication efforts between themselves while reaching new types of customers and better understanding their shopping preferences.

Conclusion

Digitalization influences consumer behaviors and will fundamentally shift how many industries operate. Businesses will have to prepare to embrace that change and think ahead about what these changes will mean for their own operations. In the future, technology will not only be an auxillary function of business operations, but will become a fundamental part of the value creation. Of all companies, the very small ones are in all likelihood the ones who are the least prepared for this, given their constant shortage of time, resources, and lack of knowledge around technology.

Competition in the digitalized world will become fiercer and if small businesses don’t want to be reduced to a fulfillment partner in someone else’s value chain, they need to make sure their brand sticks out. 


Lucie Poisson is a doctor of linguistics. Her PhD, completed at the University of Bern (Switzerland), was about storytelling in advertising. She is Marketing Manager at 1&1 Ionos SE (previously 1&1 Internet SE). She joined the company as International Online Marketing Manager, before becoming Commercial Product Manager. Previously, she worked at SAP and at several publishers in Paris, where she was in charge of marketing and digital projects.

Martin Schmidt has worked for the past four years in Strategic Business Development at 1&1 Ionos SE (previously 1&1 Internet SE). Before starting to work at 1&1, he finished his Master of International Business at the University of Auckland, New Zealand and has worked at Vodafone, HSBC and CSC. 



Please note: The opinions expressed in Industry Insights published by dotmagazine are the author’s own and do not reflect the view of the publisher, eco – Association of the Internet Industry.