Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

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THE ADOPTION OF A CUSTOMER RETENTION AND DEVELOPMENT STRATEGY AS A LOW RISK GROWTH STRATEGY FOR THE ENTREPRENEURIAL FIRM:  SOME UK EVIDENCE FROM BUSINESS SERVICE SMES IN WEST YORKSHIRE

Aftab Ahmed Dean
John Day
Paul L. Reynolds

Huddersfield University Business School
Queensgate, Huddersfield, HD1 3DH, UK.

Telephone: 44-1484-472050
Fax: 44-1484-516151
E-mail: A.A.Dean@hud.ac.uk

Principal Topics

An understandable and common objective of many entrepreneurial SMEs at some point in their life cycle is to grow their business. However many grow too quickly relative to their resource base whilst often tending only to measure their success in terms of the new customers that they have obtained. The consequence of such behaviour is that they minimise the importance of their existing customers. Therefore, this research proposes that a prudent balance of marketing effort between winning new customers and holding onto old ones will prove instrumental in the growth of the entrepreneurial SME. Proponents of a relationship marketing strategy such as the Nordic School of Marketing and Berry see customer retention as an important area of planning and analysis. This research proposes that firms adopt a low risk strategy to growth by pursuing a policy of customer retention and development. By low risk we mean that the firm focus their finite resource base on the most appropriate and profitable customers. The research further hypothesised that  it will be the entrepreneurial SMEs that recognise the benefits of such tactics and adopt them as part of their strategy for growth.

Method

A quantitative and qualitative approach was selected as the most suitable means of resolving the research problem. There is a growing amount of support for such a multimethod research approach as it provides a complete picture of the area of investigation. The Department of Trade and Industry (DTI) criteria for defining small firms was selected and this defines small firms as having between 11 to 99 employees. In the UK according to the DTI (1994) most small firms fail within the first 3 years of trading. Therefore, the research focused on firms that had been trading for a number of years and had overcome the initial problems of  survival.
A focused target group of SMEs from the business service industry in West Yorkshire (n=102)  were selected for investigation. A detailed questionnaire focusing on the relationship marketing behaviour of SMEs  was mailed to each SME during the last quarter of 1996 and the response rate was 60%. Of the SMEs that responded to the questionnaire 20 were randomly selected for in-depth semi-structured interviews  to  explain the causality of the statistically significant associations resulting  from the survey. The selected firms were classified as entrepreneurial or non-entrepreneurial by reference as to whether they used proactive, reactive or informal planning.

Major Findings

An analysis of the mean percentage loss of customers revealed that the entrepreneurial SMEs  not only had fewer customer defections from their customer base  (compared to non-entrepreneurial SMEs) but also that they lost fewer customers as compared to customers gained. The results clearly reveal that entrepreneurial SMEs are not only pursuing a policy of customer retention but are also engaged in the active pursuit of a much more measured approach to customer acquisition. These findings were further validated in the in-depth interviews and correspondence analysis. The latter revealed also that entrepreneurial SMEs were started by their current owner manager, offered both monetary and non-monetary rewards to their employees and that their entrepreneurial behaviour is dependent upon the consonance and supportiveness of an appropriate organisational system. The entrepreneurial behaviour of SMEs revealed the following significant characteristics: highly innovative and adventurous.

Non-parametric analysis revealed that the benefits of retaining profitable customers led to improvements in product and service levels and opportunities for the SME to create new products/services. These close relationships also resulted in the SME increasingly winning more  business from its customers over their life time and further that these customers generated prospective referrals for the SME. Chi square was used to determine the relationship marketing variable(s) that were strongly associated with the firms growth, the results revealed employee retention as the most significant factor. The in-depth interviews revealed that loyal employees that were retained by the company created a more enjoyable working environment as the employee had pride and satisfaction in their work.

Implications

The findings generated from the research contribute to the theory of marketing in entrepreneurial SMEs and provide some indication of entrepreneurial behaviour of SMEs pursuing a customer retention and development strategy. The results provide a framework for entrepreneurial SMEs to evaluate their business growth in the context of customer retention strategies. This would be useful not only as a research tool but also as an instrument for the analysis of the major factors driving growth. Additionally it could be used by practising entrepreneurs both at start-up and in the later stages of the venture's life.

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