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July 6, 2016 at 1:46pm – SCOTT GOLDTHWAITE
Irv Henderson, co-founder and CEO of Talech
Cory Capoccia, president of Womply
Shaun Donaghey, founder and CEO of Generator Payments
As we begin to see evidence of the evolution from reliance on Big Data by big companies to the adoption of Small Data by smaller merchants, it’s important to understand the difference between the two types of data—and the benefits that Small Data can offer. While the largest retailers have the benefits of maintaining data warehouses, business intelligence tools, and data analysts to comb through their own Big Data to spot customer trends, make targeted offers, and steer payments to lower costs methods, smaller businesses do not have these capabilities. However, small businesses do have a need to better understand their customers without the heavy investment in Big Data tools, technology, and personnel.
The March 2016 announcement that Square has integrated with Facebook to allow its clients to buy and target Facebook advertising is a harbinger that smaller-budget companies will increasingly take advantage of segmented data sets for the purpose of better understanding their customers. Just as Square clients learn to leverage targeted information to attract new and repeat customers, small to medium-sized businesses throughout the country are beginning to identify methods to capture Small Data and use it to grow their sales and increase their profits.
But what exactly is Small Data, and how can smaller companies leverage it to make strategic business decisions? Three payments industry experts—Talech’s Irv Henderson, Womply’s Cory Capoccia, and Generator Payments’ Shaun Donaghey—offer their take on the importance of Small Data to the U.S. market and share insights about why merchant service sales teams must evolve to offer solution-based sales to remain relevant in an increasingly data-driven business climate.
What is the difference between Big Data and Small Data?
IRV HENDERSON: Big Data takes extremely large data sets and analyzes them for patterns, trends, and associations. Small Data is the democratization of data collection, storage, and analytical tools that makes insights about small businesses accessible and intuitive. While some tools are more appropriate for Big Data sets—machine learning, for example—Small Data sets can nonetheless take advantage of analytics that surface important insights about business performance.
For example, with a Small Data set, we can take a stand-alone business and evaluate its customers’ spending patterns for recency, frequency, value, and preference. Or, we can use the same data set for evaluating inventory burn down, forecasting. This level of data analysis obviously has huge implications for the way a business owner runs their corner store.
CORY CAPOCCIA: From my point of view, Small Data is the mass democratization of the access, storage, and processing of data. To benefit from Big Data, historically, it was a prerequisite that you were a large organization that could afford to support the large server farms necessary to extract value from the underlying data sets. Advancements in computing storage and processing technology have liberated us from that cost-prohibitive overhead and, in turn, enabled collaboration around an ecosystem of Small Data.
SHAUN DONAGHEY: Small Data is simplified Big Data that is accessible to the small business owner. Whilst Big Data has relied on specialist skills, tools, large budgets, and platforms to leverage, Small Data provides a simple, cost-effective, and intuitive way for a small business owner to benefit, if done right.
How would you describe Small Data to the business owner at the corner store?
HENDERSON: Small Data is about analyzing the data in your business that can help you run your business better through a focus on increasing revenues and controlling costs. For example, as a business owner, it’s about understanding what items sell well together, so you can encourage customers to make a larger spend at the point of sale.
CAPOCCIA: Small Data enables small business owners to make data-driven decisions without requiring a large, upfront investment of time, technology, or training. For example, Small Data is making advanced staffing decisions based on Small Data highlighting how the business has performed due to weather or local events.
DONAGHEY: What if you could make better business decisions for your business every hour of every day using information readily available to you? Imagine being able to predict certain business events that would drive revenue growth and profits, all through a simple accessible interface—would that be of interest to you?
How do you segment the market between merchants that use Big Data and merchants that use Small Data?
HENDERSON: The segmentation between Big Data and Small Data can be broadly defined along merchants’ size (read: budget) and business management. In general, bigger merchants who have growing concerns of greater than $1 million are more data-driven in their decisions. This is particularly true for business owners who have ambitions to grow their operations across many locations.
While costs related to level of investments may limit small to medium-sized businesses (SMBs) who are able to invest in the near-term, the decreased costs related to the proliferation of the cloud, mobile, and inexpensive SaaS software will make the investment case more compelling going forward.
CAPOCCIA: Historically, this was entirely defined by a merchant’s revenue/size. Large multi-location regional or national retailers were the only merchants that had the resources (time, tools, technology, budget, etc.) available to access Big Data. Even if subject matter experts (SMEs) had access to the same technology, they wouldn’t have the time or the skill set necessary to benefit from the Big Data. Given advancements in technology, we’re now about to apply large amounts of computing power against the same Big Data sets, but distill the information down into a Small Data form that is not only palatable, but actionable, for SMEs.
DONAGHEY: Revenue, number. of sites/stores, scale, IT savviness and SaaS adoption, existing software/tools, ownership/management model—these are all metrics which could be applied to assess whether a merchant is a “Small Data” candidate. There isn’t a single definable characteristic—a coffee shop owner with 10 sites is just as eligible to benefit as an operator with a single store.
How can merchants utilize Small Data to increase sales, reach new customers, and retain profitable customer relationships?
HENDERSON: To effectively use Small Data, merchants must first capture data at the point of transaction—in store or online. Because many small business owners have a strong physical presence, they’re often able to capture data when the customer comes directly to the store. In our experience, point-of-sale (POS) and/or loyalty programs are quite efficient at capturing Small Data as these programs are “listening” and capturing critical data on transactions in the business—what’s selling, who’s buying, when it’s selling, how often it’s selling, etc.
Once the data is captured, merchants are able to work with their own data set and take direct action to effect business outcomes. For instance, merchants can run a highly targeted promotion against highly valued customers who’ve previously visited the store. Or, they can run a promotional campaign against their existing customer base to refer a friend.
CAPOCCIA: There are so many ways that merchants can utilize Small Data to improve their business, so let’s focus on a very tangible real-world example to illustrate.
Online reputation is critical for merchants to actively monitor and manage. Nine out of 10 consumers are translating their online buying behaviors on websites like Amazon into the offline world. Consumers are actively researching offline businesses online to identify the business with the best overall rating. This applies to consumers choosing which dentist or doctor to see, where to get their car repaired, where to eat, which hotels to stay at, which activities to book, etc. Managing online reputation is difficult and time-consuming for merchants because they have to actively monitor activity across numerous websites—from Facebook to Yelp, Trip Advisor to Open Table, Google to Angie’s List, etc. What is even more challenging is trying to understand the relationship between online reputation and revenue generation. For example, merchants do not understand the impact to their revenue when their overall reputation goes down by one star.
Harvard University conducted a study recently where it discovered that a one star change in a merchant’s online reputation can result in a decline in revenue by as much as 10 percent. Imagine you’re a hotel generating $1 million in annual revenue…that means $100,000 of your revenue is at risk.
Small Data solutions that actively manage a merchant’s reputation, and tie that activity back to the merchant’s transaction and revenue performance, help merchants attract more customers while simultaneously retaining the customers they have invested to acquire.
DONAGHEY: Small businesses have one great advantage over medium-enterprise organizations. They can be nimble, agile, and make decisions instantly. They are in control and have a deep connection to their business. Data they own and control allows them to make informed decisions. A merchant could use Small Data to predict cooler weather and analyze foot-traffic trends to offer location-based incentives on hot drinks if a customer signs up to its loyalty program.
What’s the ROI for merchants to invest in data management tools?
CAPOCCIA: For SMEs who utilize data management tools, our belief is that the biggest ROI is the return on their time. They are able to make more informed decisions about how to run their businesses more effectively, in a fraction of the time it would have taken them without a data management tool. Given that they are often heads down operating in the business, time is the greatest thing that can be given back to merchants. If Small Data can help them grow their business more efficiently, then that is a huge win.
DONAGHEY: The question should be, what you can lose if you don’t? The small business owner isn’t interested in tools so he can passively view and analyze trends. What he needs is proactive support in making quick decisions that will positively impact the business. The ROI is surely measurable by the impact on top/bottom line.
How do security and privacy regulations impact Big Data and Small Data?
HENDERSON: For consumers, security and privacy regulations are providing some assurance that the massive amounts of data being collected by businesses will not be abused. For business owners, the regulations are helping to provide a structure that balances consumer privacy against the business priorities. Regulatory levers around security and privacy will continue to manage the tension between the enormous amount of data being collected on consumers and the protection of this data both in terms of its storage and usage for commercial purposes by SMBs.
CAPOCCIA: Consumer privacy is at the top of the list. With the power of Big and Small Data comes great responsibility to be a good steward of the data and to leverage the data in a way that creates a better interaction between merchants and consumers without breaching anyone’s privacy.
DONAGHEY: Privacy for consumers will be of concern, although a number of Big Data sets are anonymized (or so we are told) to a degree to protect the individual. If data is anonymized, what role does security have? Data collection sits alongside other processes that consumers are inherently comfortable with (or opt in for)—using the credit card to pay for goods, allowing location-based services, opting in for notifications, proximity alerts, geo-fencing, etc. As long as identity cannot be traced to an individual or address, Big/Small Data should be OK.
Where do you see this market two years from now?
HENDERSON: In payments, all the experts know what will happen in 10 years; but, no one knows about the next two years. It’s a puzzle. We believe during the next two years, the migration to more data-driven decision making at the SMB level will be slow and steady.
There are three primary trends that are irreversible at this point: Tablets are deeply penetrated in U.S. homes, data is inexpensive to store, and the proliferation of software that targets business owners is at an unprecedented level. These three trends are shifting merchants’ expectations of the value of services.
CAPOCCIA: In addition to the trends highlighted by Shaun and Irv, we also believe that the increasing number of younger generations who are either taking over or starting up their own businesses is accelerating the pace of adoption of Small Data solutions. Because of this increasing adoption, it will be an absolute requirement to have a solution in place to remain competitive.
DONAGHEY: Small Data will be recognized as more than a value-add to small businesses, but something that should be critical to their tactical and strategic daily operations as much as running a POS, maintaining inventory, managing staff, etc. To reach this, though, there needs to be education, relevant success stories, and a willingness on the part of the small business owner to embrace a new way to help grow their business.
How do you think Small Data conversations change the way that merchant services sales teams engage business owners?
HENDERSON: In the payments industry, sales forces that have traditionally focused on merchant services have increasingly had to focus on value selling over a discussion on “basis points.” SMBs want to understand how new software services (mPOS, loyalty/gift, accounting, reputation) can help them run their businesses better.
Increasingly, sales forces need to be knowledgeable about the services that business owners are adopting. Traditional merchant services sales reps risk disintermediation as customers’ expectations shift well beyond basic card acceptance.
CAPOCCIA: It is one element of the “new sales” shift where merchant service sales teams are recognizing that they must evolve into solution-based sales vs. being a one-trick pony selling a commoditized service where the only differentiation is price. The reality is that in order to be relevant to the needs of business owners today, merchant service sales teams have to change or else they will quickly become irrelevant and extinct.
DONAGHEY: There needs to be a large shift in merchant sales reps’ attitude and education to become solution advisors, if that is at all possible (perhaps in certain dark reaches of the ISO community it is not). Some technology companies, like cloud-based POS providers, have been doing this for a while—but merchant services reps have a unique advantage to engage the owner in a comprehensive business discussion that would lift their credibility if they approached a prospect with more consideration than getting ink on a contract, and the merchant will expect and demand this over time.
Scott Goldthwaite is senior vice president of operations at Aliaswire Inc. and the chair of the ETA Technology Council. Reach him at firstname.lastname@example.org.