Wither SME Product Sellers?

DMNews reports on infoUSA data showing the number of small businesses in the U.S. declined by about 300,000 from 11.6 million at the end of 2003 to 11.3 million at the end of last year.

This prompts me to think about the focus group that The Kelsey Group ran in Denver last Thursday night.

What became very clear to me is that the Internet and online comparison shopping is a profound threat to SME product sellers.

Although there are ways to manipulate pricing information shown on Web sites, the availability of online comparison shopping will force prices down over time.

Online comparison shopping has clearly captured the imagination of consumers and will only continue to grow. This isn't to say that e-commerce will take over; however, shopping online for the best price will be a routine part of the mainstream consumer's product buying process very very soon. Many of those consumers will then go to local "big box" retailers and discounters to obtain the product they researched online.

One of the things that the focus group participants kept coming back to was their desire to "avoid the people at the malls" and the convenience of online shopping (in this case, e-commerce as a mall substitute).

You can't get your teeth cleaned or your toilet fixed or your yard landscaped online — although you can find someone to do those things — so the service businesses that are traditional YP advertisers are "safe" from e-commerce (though not the need to integrate the Internet into their marketing).

It's clear, however, that the only way that an SME/local product seller will be able to stay in business over the long term is by differentiating on customer service, or by offering a unique product. Think of the local hardware store where you can get lots of friendly advice vs. Home Depot where you can't even get the attention of a person "on the floor" most of the time.

There's no way, however, these local businesses can win on price — this trend started with the big boxes and the Internet is going to accelerate it.

Our focus group participants wanted to support local small businesses (which annually create more jobs and drive more GDP than large corporations) and they had a general sense that their emerging love of online comparison shopping was vaguely threatening to the local market.

But they still couldn't resist the gravitational pull of lower prices and free shipping.

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