#3 | Customer is King: How do small businesses perceive customer relationships?

People's voice - A study on Indian small businesses

‘Bhaiyya lik lo’ (Brother, write it down). There is no fancy sign-up. No KYC. No underwriting. No penny drop. Nothing. Those three words are powerful enough to disperse credit to a customer in a retail store. The personal touch from your local shopkeeper, seemingly knowing your preferences without any fancy data analytics, is unique to Indian SMEs. In small businesses, the connection with customers goes beyond the typical buyer-seller relationship. 

Welcome to edition 3 of our blog post series, "People's Voice: A Series on Uncovering Opportunities for AI in Small Businesses." This time, we're diving deep into the crucial topic of customers. Let's explore the intricate relationships that small businesses build with their clientele and uncover potential AI opportunities in enhancing these connections.

1. Chota TAM / Bada Kaam

In contrast to e-commerce businesses that view their Total Addressable Markets (TAM) in the millions and span multiple countries, local shop owners perceive their immediate neighbourhood as their potential. This means that every customer is substantial to their business operations. Their courteous and friendly demeanour during customer interactions is an investment in customer market fostering customer loyalty.

“We should talk to the customers kindly and give them whatever they ask for correctly. We should treat them with respect. Then definitely they will come again. If we speak rudely they don’t come tomorrow. It depends on the way we speak. If something is unavailable, I ask them to come tomorrow and it will be available tomorrow.” - #24 | H2,Clothing Store, Tiruppur (TN)

Relationship over short-term losses

They prioritise enhancing customer satisfaction to a great extent, even to the point of enduring financial setbacks.

Customers are important and because of them only our business is running. Sometimes customers try to bargain in spare parts, I deny them because I don’t use roadside spare parts in the vehicles. But sometimes for customer’s satisfaction we have to fix spare parts in cost price only. Our profit might be very low with that customer but we have to let go. Sometimes we don’t get profit also but we let customer do his way. We feel our customer base should not go down - #7 | A1, Four wheeler Garage, Bandara (MH)

Demonstrating politeness, patience, and kindness to customers can lead to repeat business and positive referrals.

I will turn a regular customer into a loyal customer. First, it starts with the impression they get when they visit my shop. If they like the attitude and helpfulness of the staff, or if they appreciate the way they showcase the latest fashion trends, they are more likely to come back. However, if I don't have a particular item at the moment, I will assure them that I will inform them when it becomes available. If I want to bring them back, I will find a way to convince them. - #12|J1, Clothing Store, Nagpur (MH)

To turn a one-time customer into a regular one, I invest time in addressing their concerns. I aim to meet their business needs. When a customer has a complaint about a product they've purchased from elsewhere, it's an opportunity for us. I try to provide personalized attention and explanations. Some shops prefer not to honor warranties because if they replace items under warranty, customers are likely to return frequently for replacements. Instead, they encourage customers to buy new items. We, on the other hand, inform customers about warranties and provide replacements, which builds trust. Customers know that when they come to our shop, they can have their needs addressed, items changed or replaced, and this trust leads to repeat business. - #21 | V2, Mobile Store, Coimbatore (TN)

Reap the benefit later

In certain instances, business owners go the extra mile to assist customers with inquiries that do not immediately result in a sale.

We have to explain things to the customer and clarify any doubts. In a jewellery shop, a customer purchases jewellery worth 50,000 to 1 lakh, but they may not know about its purity. Therefore, creating trust depends on our behavior. We used to take our customers to the manufacturing unit so that they can see that the right materials are available here. We show them our work, and then they trust that our work is good. - #2 | S3, Furniture Store, Prayagraj (UP)

At my shop, I prioritize customer satisfaction by offering a wide range of products and services. As an ICICI Prudential agent, I provide insurance solutions and mediclaim services. Additionally, I am an authorized IRCTC agent, enabling me to assist customers in booking train tickets using my laptop. My goal is to ensure that every customer finds what they need and leaves my shop satisfied. While Smart Bazaar offers a diverse selection of products, it does not provide train ticket booking services. However, at my shop, customers can not only purchase various products but also conveniently book their train tickets, especially catering to older individuals who may have difficulty accessing the railway station. - #13 | S8, Cosmetics/Fancy Store, Durgapur (WB)

Where do they struggle?

• Handling tough customers: When shopkeepers and staff are busy, managing a difficult or unhappy customer can be hard. For example, a customer leaving without buying anything due to lack of desired stock can be disheartening.

• Lack of customer service skills: New store owners and staff often struggle to read and respond to customer emotions, leading to a poor shopping experience.

• Challenges in gathering client Insights: Business owners often struggle with too many daily tasks and responsibilities. They don't have the time or tools to improve customer experiences by collecting feedback. They rely on intuition and conversations instead of a structured feedback, which might miss important issues.

If you are building for SMEs, here is an opportunity statement

💡 How can we assist small business owners and their staff in assessing the tone of their customer conversations, and offer recommendations to to foster long term relationships?

2. Offering flexible payment to retain customers

Another crucial element in cultivating customer trust is business flexibility. Retailers perceive flexibility as accommodating returns, offering discounts, price negotiations, and extending credit. We will delve into each of these aspects in the following discussion.

2.1. Respecting Product Returns:

A store's reputation is intrinsically linked to the quality of its products. When customers find that their purchases do not meet their expectations, they are inclined to return the items. Retailers, in turn, respect these returns, even if they did not explicitly promise to do so before the sale. This practice fosters trust.

“I don't refuse returns. If I did that, then they wouldn't come to me. I am the neighborhood shop. I have only a couple of customers all day. I don't get a thousand. If I refuse them, they wouldn't come to me. If they have used the goods, then I call them and tell them. She had ₹600 due, and she returned it to me. I deducted the amount from what was due from her.” - #16 | P3, Clothing store, Asansol (WB)

In certain instances, retailers extend their customer service by accepting returns of products beyond their warranty or return period.

“ *There is a bulb product, we do marking by writing a date on it. The customer comes to me and the date expires by few days, other shopkeepers might not return, however, we give them benefit by accepting that product and giving them a new product. So the customer feels that we are late by a day and still the shopkeeper has accepted the return. This makes him feel that this shopkeeper is a genuine person and he is trustworthy and fulfill his commitment.” - *#5 | V1, Electricals/Hardware Store, Pratapgarh (UP)

2.2. Discount Policies:

We found that a consistent discount policy was generally lacking. Instead, they occasionally implement promotional deals or offers, often tied to festive seasons. However, one common practice is offering greater discounts to loyal customers, fostering appreciation and encouraging repeat business. This relationship can even evolve into friendship, with some regular customers visiting the store for leisure.

“*If he is my regular customer, many mechanics also come to us for getting cars repaired, I give more discount to my continue coming customers. If it is new customer we come to know. We see the vehicle number and come to know that this vehicle has come from Raipur or Nagpur or somewhere else. We know that this outside customer will never come again to our workshop. Only 2% difference is there in our discounts for regular and new customers.” - *#7 | A1, Mechanic Garage, Bhandara (Maharashtra)

“We give discounts, it depends. Some people go without discounts as well. If we feel like reducing the price, we would reduce it and give them the discount. We must be making a profit of 500 rupees, so we can afford to reduce the price by 50 rupees and sell that item to them.” - #25 | K1, Footwear Store, Tiruppur, (TN)

“We offer a lot of promotions during Diwali, depending on the market situation. It varies based on factors like which models are in demand and what benefits we can provide. We offer discounts and accessories. If a mobile phone costs 10,000 rupees, we might offer a discount of 500 rupees, which attracts customers. We can also provide accessories at a lower price, which can be quite profitable.” - #21 | V2, Mobile Store, Coimbatore, (TN)

One particular example was a saree retailer who opted to offload his unsold stock to his existing customers at a significantly reduced price rather than scrapping it. His rationale was that this gesture would incentivize his customers to return more frequently.

“We try to sell unsold stock at a lower cost. There are people who sell things on the (roadside) platform, they come buy sarees in a bulk. If I sell it to them at 50 rupees I will get no benefit but If I get regular customers and I give the same discount to them I will find some benefit at least. So why should I give it to these platform sellers. Our regular customers will be happy that I sold this to them. They will come back to me the next day thinking that I gave him a good price.” - #24 | H2, Clothing Store, Tiruppur (TN)

2. 3 Negotiation:

In the case of retailers dealing with non-MRP goods, there isn't a set price. Instead, they gauge the price based on the customer’s behaviour. The primary aim of the store owner is to avoid selling the products at a loss but compromise on their profit margin.

“If someone asks for a discount after already receiving one, I would still be willing to reduce the price slightly. However, as a business owner, I cannot bear the cost myself. For example, if I purchase something for 100 rupees and sell it for 120 rupees, I make a profit of 20 rupees. If a customer requests to buy it for 90 rupees, I cannot accept that offer. In that case, I would have to cover the additional 10 rupees from my own pocket. That's why I always clearly state the final price, and if the customer agrees, they can make the purchase. Otherwise, there is nothing more I can do.” - # 14 | J2, Cosmetics/Fancy store, Durgapur (WB)

“Now, customers have started bargaining. Earlier, they never used to bargain. We, on our own, reduce the price because we feel guilty. Even if they don't ask, we have to reduce the cost by at least 20 to 30 rupees. People have started having the mindset to bargain now. When they go to big shops, they don't bargain. If 100 people come, 90 of them try to reduce the price.” - #25 | K1, Footwear Store, Tiruppur (TN)

2. 4 Credit:

While most shopkeepers we encountered were reluctant to offer credit to their patrons, a handful used this as a unique selling point against their competition. Regular customers who frequently make purchases are typically the ones granted credit.

In a grocery store (#23.M3), a credit account is initiated where the shopkeeper records the outstanding balance on a piece of paper.

“We can give credit to those who have been our regular customers. We don't know who the person is when they come for the first time. When they start buying things and promise to pay the money weekly, then we can trust them. We also give them card, which they keep with them.I write the names in the card. Like in this card, the person has to pay 1674 rupees.” - #23 | M3, Grocery Store, Tiruppur (TN)

In an electrical store (#5.V1), especially for substantial bulk purchases for new homes, the shopkeeper employs a dedicated loan collection agent who goes from house to house to gather payments.

“We have another person focuses on collecting payments from people who owe us. I will provide travel allowance and cover petrol expenses for this person as their main job is to recover payments. They will be working in the field. The person in charge of collecting payments will handle recovery efforts and take orders from customers who want products, while also focusing on payment collection.” - #5 | V1 ,Electricals/Hardware Store, Pratapgarh (UP)

In the grocery store scenario, the business owner has minimal information about the debtor, whereas in the latter case, the retailer possesses more detailed information such as the debtor's name, address, and occupation.

Where do they struggle?

• While store owners are willing to accept returns of defective items, they may not be able to get a refund from their suppliers, resulting in a loss due to damaged stock.

• Retailers often struggle with negotiations due to the lack of a formal billing and inventory system. Remembering product prices can be difficult. Sticking to a fixed price might turn away customers, but too much flexibility could result in losses after accounting for operational costs such as rent, salaries, and electricity.

• Giving customers credit can be a gamble. If they fail to repay, they may avoid the store and find other options. This puts the store owner in a tough spot, as pushing too hard for payment could lose the customer. Often, they end up having to forgive the debt.

Conclusion:

The magic mantra of running a small business lies not in what SMEs say, but in what they don't say. When developing solutions for SMEs, observing one person over an extended period yields better insights than conducting a survey with 100 different individuals. The flexibility of transactions and the importance of building relationships are beautiful aspects of small businesses, but they come at a cost. The key question to ponder is how technology can be integrated into the lives of SMEs without compromising the relationships they value.

The full report of this study is available to read here 👇

If you are excited about building AI solutions for India, join the People+AI WhatsApp group to brainstorm ideas and attend exclusive events.