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Small Businesses Need Big Data, Too

Geplaatst op dec 6, 2013 in News

If you run a small or medium-size business, chances are you haven’t felt a need to invest in extensive customer data, relying instead on your well-honed intuition to help you hold your own against data-rich, bigger competitors. A lot of small-firm owners and managers feel that way, and in many cases they’re justifiably proud of their competitive intangibles—a gut sense of the market and the flexibility to change quickly.

What you may not realize is that investing in data and learning how to use it might be transformative for your business. In research we conducted with Gillian Armstrong of the University of Ulster and Andrew Fearne of the University of Kent, we found not only that small businesses benefited from the precision offered by customer data, but also that exposure to data encouraged owner-managers to share insights with employees and get them involved in companies’ competitive thinking.

Of course, for the smallest businesses, access to extensive consumer data can be prohibitively expensive, a point we’ll address in detail in a subsequent post. But cost isn’t the only barrier. Small firms tend to find the whole concept daunting—they know they lack the expertise and the time resources to make good use of the information. Our three-year project was designed to build awareness among small firms about the value that data could have for their businesses.

Funding from a regional UK government agency enabled us to get over the cost barrier: It allowed us to provide loyalty-card information from supermarket giant Tesco, free of charge, to seven firms in the Northern Ireland region of the UK. These companies, ranging in size from seven to 45 employees, sell such things as dairy products, baked goods, vegetables, and desserts to Tesco and another grocery chain, Sainsbury’s (we tasted some pretty amazing soups during the course of our research—a tough job, but someone has to do it).

The data, provided by analytics firm dunnhumby, covered such things as consumer life stage and lifestyle, market-basket analysis, and best-performing stores for the small firms’ products.

The formalized structure of loyalty-card data within a statistical format requires firms to take a more formalized and struc­tured approach to marketing planning—that’s a challenge for small companies. Owner-managers were encouraged to attend workshops, and one of us (Christina Donnelly), after being trained by dunnhumby, worked one-to-one with owners and managers to help them retrieve the most relevant data from the loyalty-card database and analyze the information, so that the companies could answer questions such as “How is my category performing?” “What is the most popular flavor of bread?” “What type of consumer buys a product similar to mine?”

We found that prior to being exposed to the loyalty-card data, the small businesses tended to be dominated by their owner-managers, who made decisions on the basis of their past experiences and any consumer information they could get their hands on. For example, one firm, having been asked by a retailer to produce a range of ready meals, simply looked at other products on the market and tried to imitate them. In other cases, the small firms followed guidelines laid down by the big retail buyers.

Once they were given access to loyalty-card data, most of the small firms took to it immediately. They were quick to adopt a more formalized approach to marketing planning. They were able to envision long-range innovations, rather than reacting to competitors’ or the retailers’ actions. One small-firm owner said the data had changed the company’s ideas about how to grow its consumer base. Another said, “Now we know precisely who our target consumer is.”

A yogurt maker, for example, learned by analyzing the data that older adults were a key market for its products, so when the company’s representatives visited supermarkets for in-store tastings, they no longer tried to entice younger shoppers and instead focused on older people. The tactic improved the events’ productivity.

But the small firms didn’t abandon their reliance on experience. Instead, the data complemented the owners’ and managers’ intuition, giving them new confidence.

Moreover, the data amplified the firms’ inherent entrepreneurial nature. Workplaces became more collegial: Most of the owner-managers shared the card information with their firms and encouraged employees to get involved and offer new ideas.

Big Data threatens to create a deep divide between the have-datas and the have-no-datas, with big corporations gaining advantage by crunching the numbers and small firms left to stumble in the dark. The small firms we worked with were well aware that they were at a severe disadvantage to big competitors that had the financial muscle to buy into loyalty-card data and the resources to use it.

Governments and universities can play important roles in bridging the divide, providing funds and expertise so that small firms can get access to, and learn to interpret, data. Our project is an example of a fruitful collaboration—among the University of Kent, the University of Ulster, dunnhumby, and the government funding body. The quality of the learning is important. A key reason why this project worked was the one-to-one help for the owner-managers. Data is only as good as the people who use it.

For small and medium-size firms that do manage to acquire consumer data, there’s still more work to be done: They need to be sure to encourage employees to participate in thinking about how to use the information competitively. We saw firsthand that inclusivity energizes firms, driving innovation.

From Data to Action An HBR Insight Center

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